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: Ion Geophysical Corp (NYSE: IO)
Today’s penny stock pick is the data technology company that focuses on the energy and maritime industries, Ion Geophysical Corp (NYSE: IO).
ION Geophysical Corporation provides data-driven decision-making to offshore energy, and ports, and defense industries worldwide. The company operates through three segments namely E&P Technology and Services, E&P Operations Optimization, and Ocean Bottom Integrated Technologies. It generates maximum revenue from the Ocean Bottom Integrated Technologies segment. The E&P Technology & Services segment creates digital data assets and delivers services to help E&P companies improve decision-making and reduce risk. The Operations Optimization segment develops mission-critical subscription offerings and provides engineering services that enable operational control and optimization offshore.
Website: www.iongeo.com
Latest 10-k report: https://sec.report/Document/0001437749-21-002669/
Analyst Consensus: Based on 1 Wall Street analyst offering 12-month price targets for IO in the last 3 months, the stock has an average price target of $6.00 and an average rating of ‘Moderate Buy’.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Positive reaction to ION Geophysical announcing that the company expects third quarter 2021 revenues to be in the range of $44 – 45 million, an increase of approximately 125% sequentially and 175% from the third quarter 2020.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out of a Symmetrical Triangle pattern with high volume. A symmetrical triangle is a continuation pattern and is characterized by two converging trendlines connecting a series of sequential peaks and troughs. This is marked on the daily chart as orange color lines. Once a stock breaks out from a symmetrical triangle pattern, it usually moves higher.
IO – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above both 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 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.
#5 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
#6 Double Bottom Pattern: The weekly chart shows that the stock is currently forming a double bottom pattern, which is shown in pink color. A double bottom pattern is a strong bullish pattern and a breakout from it would indicate that the stock could surge higher.
IO – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for IO is above the price of $2.25.
Target Prices: Our first target is $4.50. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $1.10. Note that the stop loss is on a closing basis.
Our target potential upside is 100% to 167%.
For a risk of $1.15, our first target reward is $2.25, and the second target reward is $3.75. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been a loss-making company. During 2020, IO’s loss from operations was $14.6 million, compared to a loss of $24.5 million for 2019. The net loss attributable to ION for 2020 was $37.2 million, and $48.2 million for 2019.
IO – Net Loss
- ION Geophysical Corporation was formerly known as Input/Output, Inc. and changed its name to ION Geophysical Corporation in 2007.
- The company’s filing of the S1 form is in progress, and has a $10m registered shelf. This could result in significant dilution.
- As of December 31, 2020, the company’s total indebtedness outstanding was approximately $143.7 millions.
- Despite reporting losses year-over-year, the company executives are being paid good compensation.
IO – Executive Compensation
- The company is estimated to have just 4.6 months of cash left based on quarterly cash burn of $9.65 million and an estimated current cash of $14.9 million.
- Corporate Insiders had sold shares worth $2.7 million in the last 3 months.
IO – Insider Transactions | Source: TipRanks.com
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!
Happy Trading!
— 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.
This is the #1 Stock to Buy for the AI Tidal Wave [sponsor]Marc Chaikin warned people about NVDA before its 2023 bull run - now he's naming his next pick or the AI tidal wave. Learn more here.