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: Destination XL Group Inc. (NASDAQ: DXLG)
Today’s penny stock pick is the specialty retailer of men’s big and tall apparel, Destination XL Group Inc. (NASDAQ: DXLG).
Destination XL Group Inc. operates as a specialty retailer of big and tall men’s clothing and shoes in the United States and Canada. Its stores offer sportswear and dress wear; accessories; fashion-neutral items, including jeans, casual slacks, T-shirts, polo shirts, dress shirts, and suit separates; and casual clothing. It also provides tailored-related separates, blazers, dress slacks, dress shirts, and neckwear; and vintage-screen T-shirts and wovens under various private labels. In addition, it is involved in the development and wholesale distribution of products to retailers. The company offers its products under the Destination XL, DXL, DXL Men’s Apparel, DXL outlets, Casual Male XL, Casual Male XL outlets trade names. As of January 30, 2021, it operated 226 DXL retail stores, 17 DXL outlet stores, 46 Casual Male XL retail stores, and 22 Casual Male XL outlet stores, as well as an e-commerce site at dxl.com.
Website: www.dxl.com
Latest 10-k report: https://sec.report/Document/0001564590-21-014278/
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for DXLG in the last 3 months, the stock has an average price target of $11.00.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported solid Q3 earnings. Sales for the quarter were not just up 42.6% year-over-year, they were also up 14% from the pre-pandemic Q3 2019.
DXLG – Q3 Report
- Hedge Funds Increased Holdings by 41.8K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company’s 2021 holiday sales and notably comparable sales in its omni-channel retail business were up from 2019 as well as 2020.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
DXLG – Daily Chart
#2 Bullish RSI: The RSI is moving higher from oversold levels and is currently near 50, indicating possible bullishness.
#3 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#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 Flag Pattern: The weekly 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 purple 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. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are in control.
DXLG – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, and is also moving higher from oversold levels, 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 DXLG is above the price of $4.95.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss around $4.40. Note that the stop loss is on a closing basis.
Our target potential upside is 17% to 41%.
For a risk of $0.55, our first target reward is $1.05 and the second target reward is $2.05. 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:
- The company has a history of net losses. Net loss for fiscal 2020 was $(64.5) million, as compared to $(7.8) million in fiscal 2019.
DXLG – Annual Report – Net Loss
- Corporate Insiders Sold Shares Worth $30.0K in the Last 3 Months.
Insiders | Source: TipRanks.com
- The company was formerly known as Casual Male Retail Group, Inc. and changed its name to Destination XL Group, Inc. in February 2013.
- Despite being a loss-making company, the executives are being paid significant compensation.
DXLG – Executive Compensation
- The Company has received notices from Nasdaq regarding noncompliance with its continued listing requirements. In April 2020, the Company was notified that the Company no longer met the requirement to maintain a minimum consolidated closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5450(a)(1).
- In December 2020, the company voluntarily delisted its common stock from The Nasdaq Stock Market to the OTCQX tier of the OTC Markets. The company was later uplisted to the Nasdaq Global Market from September 8, 2021. However, there is a risk of this happening again. It may be noted that trading of the company’s common stock on the OTCQX market may be volatile and sporadic, which could depress the market price of the company’s common stock and make it difficult for stockholders to sell their shares.
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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