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: Flotek Industries Inc. (NYSE: FTK)
Today’s penny stock pick is the chemical manufacturing company, Flotek Industries Inc. (NYSE: FTK).
Flotek Industries Inc. delivers chemistry-based technology solutions for energy, industrial and consumer applications. It develops and supplies chemistry and services to the oil and gas industries, and high value compounds to companies that make food and beverages, cleaning products, and cosmetics.
The company operates in two segments, Chemistry Technologies and Data Analytics. The Chemistry Technologies segment designs, develops, manufactures, packages, distributes, delivers, and markets reservoir-centric fluid systems, including specialty and conventional chemistries, for use in oil and gas well drilling, cementing, completion, remediation, and stimulation activities designed to maximize recovery in new and mature fields, as well as to reduce health and environmental risk by using greener chemicals. This segment serves integrated oil and gas, oilfield services, independent oil and gas, international supply chain management, and national and state-owned oil companies.
The Data Analytics segment designs, develops, produces, sells, and supports equipment and services that create and provide valuable real time information about the composition and properties for customers’ oil, natural gas, and refined products. This segment sells Verax analyzers, deployed in the field across the oil and gas sector, to support contracts and software services via its cloud-based Viper software platform, as well as sells hardware-related solutions. It sells its products directly through its sales force and contractual agency arrangements.
Website: www.flotekind.com
Latest 10-k report: https://sec.report/Document/0000928054-21-000044/
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for FTK in the last 3 months, the stock has an average price target of $2.50, which is nearly 59% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company entered into an agreement with ProFrac Holdings, LLC to expand the previously-announced long-term supply agreement with one of ProFrac’s affiliates. This is a $1 Billion+ long-term contract.
- Noble Financial analyst reiterated buy rating and set a $2.50 price target for the stock.
Analysts | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Ascending Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out an ascending triangle pattern, which is marked as purple color lines. Once a breakout from a bullish pattern like an ascending triangle pattern occurs, it usually signifies the start of a new bullish trend.
FTK – 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 is currently moving higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day and 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, and has also moved higher from oversold levels, indicating possible bullishness.
#5 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.
#6 Downtrend Broken: The weekly chart shows that the stock has broken out of the prevailing downtrend and is also trading above its 50-week SMA. This is a possible bullish indication.
FTK – 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.
#8 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 FTK is above the price of $1.70.
Target Prices: Our first target is $2.80. If it closes above that level, the second target price is $3.40.
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 65% to 100%.
For a risk of $0.60, our first target reward is $1.10, and the second target reward is $1.70. 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. Consolidated net loss from continuing operations for 2020 and 2019 totaled $136.5 million and $76.1 million, respectively.
FTK – Net Loss
- On December 6, 2021, Flotek Industries, Inc. received written notice from the New York Stock Exchange notifying it that the average closing price of the Company’s common stock over a period of 30 consecutive trading days was below the minimum $1.00 per share requirement for continued listing on the NYSE under Item 802.01C of the NYSE Listed Company Manual.
- Despite being a loss-making company, the executives are being paid significant compensation.
FTK – Executive Compensation
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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