We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: Metromile Inc. (NASDAQ: MILE)
Today’s penny stock pick is the technology company, Metromile Inc. (NASDAQ: MILE).
Metromile provides pay-per-mile car insurance services in the United States and internationally, and charges premiums based on miles driven. The company also licenses its artificial intelligence claims platform to automate claims, reduce losses associated with fraud, and unlock the productivity of insurance carriers’ employees. In addition, it offers The Pulse, a device that plugs into the diagnostic port of its customer’s car and transmits data over wireless cellular networks. The company was formed after completing its business combination with INSU Acquisition Corp. II (INAQ) who were the Special Purpose Acquisition Companies (SPAC).
Latest 10-k report: https://sec.report/Document/0001213900-21-019209/
Analyst Consensus: As per TipRanks Analytics, two Wall Street analysts are offering 12-month price targets for MILE in the last 3 months. The average price target for MILE is $6.50, which represents 35% upside from current levels.
Potential Catalysts / Reasons for the Hype:
- The news of company insiders buying the stock.
- Rumors that the company may tie-up with APPLE cars.
- News that Ford is making Metromile’s pay-per-mile insurance offering available in its new connected cars.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
#1 Falling Wedge Pattern: The daily chart shows that the stock has been forming a falling wedge pattern for the past several weeks. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock currently looks poised for a break out from the falling wedge pattern.
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line has moved higher from below the +DI and -DI lines.
#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#4 Bullish Stoch: The chart shows that the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
#5 Reversal Signs: The weekly chart shows that the stock is had formed a neutral candle followed by a bullish candle. This is marked as a pink color ellipse. This usually indicates an upcoming reversal.
#6 Oversold RSI: The weekly chart shows that the RSI is moving higher from oversold levels. This typically points to an upcoming trend reversal.
#7 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for MILE is if it closes above the gap support, which translates to a price of above $7.00. However, you can purchase half the intended quantity of shares of MILE above the price of $5.80.
Target Prices: Our target prices are $7.00 and $10.00.
Stop Loss: To limit risk, place a stop loss at $5.00 (for entry near $5.80) and $5.30 (for entry near $7.00). Note that the stop loss is on a closing basis.
Our target potential upside is 21% to 72%.
- Entry near $5.80: For a risk of $0.80, our first target reward is $1.20, and the second target reward is $4.20. This is a nearly 1:2 and 1:5 risk-reward trade.
- Entry near $7.00: For a risk of $1.70, our target reward (TP#2) is $3.00. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has had a history of net losses since its incorporation in 2011. MILE incurred net losses of $57.2 million and $120.1 million for the years ended December 31, 2019, and 2020, respectively. The company had an accumulated deficit of $246.5 million and $366.6 million as of December 31, 2019, and 2020, respectively. For the year ended December 31, 2020, MILE had a net loss of $571,093.
- MILE’s Q2 results had beat expectations. However, it disappointed investors on several fronts including growth and guidance for the rest of the year.
- As per the company announcements, lower driver times during COVID-19 appear to be impacting growth to some degree. Since the company’s insurance prices are based on per-mile rates, reduced driving meant less money for each policy sold. However, the company seems to have failed to capitalize on this opportunity. MILE could have perhaps had initiatives for attracting new customers looking to save money on their fixed insurance premiums as they drive far less.
- The key differentiator of the company has been its first-mover advantage and sole focus on “pay-per-mile” car insurance. This could be easily emulated by other companies.
- Despite the company losing money, executives were compensated more year-over-year.
- The company has significant competition from the likes of Root and Lemonade. Moreover, home and auto insurance are increasingly becoming commodities, and the giants in the field already have everything they need to provide all technology that the future would demand. The existing insurance giants have their own devices to do the same job as MILE – All-State has drivewise, Geico has driveEasy, state farm has drive safe, and liberty mutual has right track.
- Metromile has far more customer complaints than other companies of a similar size. As per reviews by people who had to make claims or go to court, the company lags compared to a big insurer. As per the company’s business model, it requires customers to have a transmitter that is constantly transmitting even when not driving. There have also been complaints about the transmitter killing the battery.
- The company’s business model is not a good option for people who drive longer distances regularly. Moreover, using a device plugged into the car’s diagnostic port, Metromile’s app tracks driving behavior including mileage, average speed, cornering or braking, and the time of day. Many customers consider this invasive.
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.Billionaires Are Dropping Oil for "American Energy" [sponsor]
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