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: Gold Resource Corporation (NYSE: GORO)
Today’s penny stock pick is the metal concentrates producer, Gold Resource Corporation (NYSE: GORO).
Gold Resource Corporation engages in the exploration, development, and production of gold and silver projects in Mexico and the United States. The company also explores for copper, lead, and zinc deposits. Its principal asset is the 100% owned Back Forty project covering approximately 1,304 hectares located in Menominee county, Michigan.
Website: www.goldresourcecorp.com
Latest 10-k report: https://sec.report/Document/0001558370-22-003338/
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for GORO in the last 3 months, the stock has an average price target of $5.75, which is nearly 131% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- C. Wainwright analyst reiterated his buy rating and set a price target with triple-digit upside for the stock.
Analysts | Source: TipRanks.com
- The company recorded $125.2M in revenue from its Don David Mine which ultimately translated into a net income of $8.0M for its full-year 2021 financial results.
GORO – Consolidated Statements of Operations
- The company put in $25.5M capital investments, of which $6.6M was put towards exploration and infrastructure at site during 4Q21. GRC also maintained a strong cash balance of $33.7M (+33% YoY) at year-end.
- The company has zero long-term debt. Growth has primarily been funded by cash flows from operations.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Double Bottom Pattern Breakout: The daily chart shows that the stock has broken out of a double bottom pattern, which is shown in purple color. This is a possible bullish indication.
GORO – 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 currently moved 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, 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 Falling Wedge Pattern Breakout: The weekly 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 has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher. The stock is also trading above its 50-week SMA, indicating bullishness.
GORO – Weekly Chart
#7 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 GORO is above the price of $2.60.
Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $5.00.
Stop Loss: To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 54% to 92%.
For a risk of $0.80, our first target reward is $1.40, and the second target reward is $2.40. 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:
- Although the company recorded a net income for the year ended December 31, 2021, it had reported a net loss from continuing operations of $6.3 million during the same period in 2020.
- Hedge Funds Decreased Holdings by 15.7K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company’s production is primarily derived from a single operating unit and any interruptions or stoppages in its mining activities at that operating unit would materially adversely affect the company’s revenue.
- Despite having a history of losses, the company executives are being paid significant compensation.
GORO – Executive Compensation
- In February 2020, a local Ejido community filed an injunction against the Mexican federal government through which they demanded the cancellation of several concession titles, including concessions currently granted to DDGM. The federal government ordered a suspension to prevent work related to excavating, drilling, opening tunnels, and exploiting the mineral resources on the surface and subsoil of the concessions named in the injunction in the lands of the indigenous community. The lawsuit filed in February 2020 remains under review by the courts.
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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