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: Limelight Networks, Inc. (NASDAQ: LLNW)
Today’s penny stock pick is the content delivery network and value-added services company, Limelight Networks, Inc. (NASDAQ: LLNW).
Limelight Networks, Inc. operates private networks that deliver Websites, mobile applications, videos, music, software, games, and APIs; offers live and on-demand video delivery services; and provides online video platforms that help organizations manage, publish, syndicate, analyze, and monetize video contents. It also offers edge cloud services; cloud security services that provide defense against malicious apps, Website attacks, and unauthorized content access; and cloud storage services. In addition, the company provides professional services; and other infrastructure services, such as transit and rack space services. It serves media companies operating in the television, music, radio, newspaper, magazine, movie, gaming, software, and social media industries, as well as technology companies and other entities conducting businesses online.
Website: www.limelight.com
Latest 10-k report: https://sec.report/Document/0001391127-21-000034/
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for LLNW in the last 3 months, the stock has an average price target of $7.00, which is a nearly 88% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported strong financial results for the fourth quarter ended December 31, 2021, and provided strong guidance for 2022.
- Limelight Networks was upgraded by Truist Securities to a new price target of $7.
Analyst Forecasts | Source: TipRanks.com
- Hedge Funds Increased Holdings by 5.2K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Breakout From Flag Pattern: The daily chart shows that the stock was in a strong uptrend after which it started consolidating and was in a narrow range. This is a classic flag pattern, which is a continuation pattern. The flag pattern is marked in pink color in the chart. Whenever a stock breaks out of the flag pattern, it typically continues its previous trend which is an uptrend in this case.
LLNW – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and ADX line are above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line, indicating possible bullishness.
#5 Downtrend Broken: The weekly chart shows that the stock has broken out of a downtrend, which is marked as a purple color line. The stock is also trading above its 50-week SMA. This is a possible bullish indication.
LLNW – Weekly Chart
#6 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for LLNW is above the price of $3.85.
Target Prices: Our first target is $5.00. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $3.20. Note that the stop loss is on a closing basis.
Our target potential upside is 30% to 56%.
For a risk of $0.65, our first target reward is $1.15, and the second target reward is $2.15. 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 a history of net losses.
LLNW – Consolidated Statement of Operations
- There is significant competition from the likes of Fastly and Cloudflare.
- Despite being a loss-making company, the executives are being paid significant compensation.
LLNW – Executive Compensation
- The company has high customer concentration. Amazon accounted for approximately 30% of the company’s total revenue while Sony represented 11% of the total revenue, as per the latest 10-k.
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.
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