This High Risk / High Reward Stock Looks Ready for a Break Out

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: Multiplan Corp (NYSE: MPLN)

Today’s penny stock pick is the software solutions company, Multiplan Corp (NYSE: MPLN).

Multiplan Corp provides data analytics and technology-enabled cost management, payment, and revenue integrity solutions to the healthcare industry in the United States. The company offers analytics-based services, which reduce medical costs through data-driven algorithms that detect claims over-charges and recommend or negotiate reimbursement; network-based services that reduce medical costs through contracted discounts with healthcare providers; and payment integrity services, which reduce medical costs by identifying and removing improper and unnecessary charges paid during the claim.

It also provides health benefit plans, which features reference-based pricing and tools to engage health plan members and providers to make the use of benefits before and after care delivery. The company serves national insurance companies, Blue Cross and Blue Shield plans, provider-sponsored and independent health plans, third party administrators, insurance bill review companies, Taft-Hartley plans, and other entities that pay medical bills in the commercial healthcare, government, workers’ compensation, and auto medical markets.

Website:  https://www.multiplan.us/

Latest 10-k report:  https://sec.report/Document/0001793229-21-000004/

Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for MPLN in the last 3 months, the stock has an average price target of $6.50, which is nearly 67% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• The company reported profits during the latest quarter.
  

  MPLN – Quarterly Report

• Corporate Insiders Bought Shares Worth $1.4M in the Last 3 Months.
  

  Insiders | Source: TipRanks.com

• Hedge Funds Increased Holdings by 250K 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 Symmetrical Triangle Pattern: The daily chart shows that the stock is currently forming a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.

#2 Bullish RSI: The RSI is moving higher from oversold levels and is currently near 50, indicating possible bullishness.

#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 Broken Downtrend: The weekly chart shows that the stock had broken out of the prevailing downtrend, which is marked as a pink color line. This is a possible bullish indication.

#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.

#6 MACD above Signal Line: In the weekly chart as well, 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 MPLN is above the price of $4.00.

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 $3.45. Note that the stop loss is on a closing basis.

Our target potential upside is 25% to 50%.

For a risk of $0.55, our first target reward is $1.00, and the second target reward is $2.00. This is a nearly 1:2 and 1:4 risk-reward trade.

In other words, this trade offers 2x to 4x more potential upside than downside.

Potential Risks / Red Flags:

1. The company’s net loss for the year ended December 31, 2020, was $520.6 million.
   

   MPLN – Consolidated Statements of Net Losses

2. On November 11, 2020, Muddy Waters Research issued a report titled “MultiPlan: Private Equity Necrophilia Meets The Great 2020 Money Grab,” alleging, among other things that Multiplan is “in financial decline, and its financial statements were engineered to obscure this existing deterioration.” It further stated that the Company “is in the process of losing its largest client, UnitedHealthcare,” which “has formed a competitor to MultiPlan that offers significantly lower prices and fewer conflicts of interest.”
3. Despite being a loss-making company, the company executives are being paid millions in compensation.
   

   MPLN – Executive Compensation

4. On February 24, 2021, and March 5, 2021, putative securities class action complaints captioned Srock v. MultiPlan Corporation et al., No. 1:21-cv-1640 (S.D.N.Y.) and Verger v. MultiPlan Corporation et al., No. 1:21-cv-01965 (S.D.N.Y.) were filed in the United States District Court for the Southern District of New York.
5. As of December 31, 2020, the company had total indebtedness (excluding an aggregate of $1.8 million of letters of credit) of $4,941.1 million.

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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