We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: Barnes & Noble Education Inc. (NYSE: BNED)
Today’s penny stock pick is the company that engages in the management and operation of bookstore chains in universities, Barnes & Noble Education Inc. (NYSE: BNED).
Barnes & Noble Education Inc. operates bookstores for college and university campuses, and K-12 institutions in the United States. It operates in three segments: Retail, Wholesale, and Digital Student Solutions. The company sells and rents new and used print textbooks, digital textbooks, and publisher hosted digital courseware through physical and virtual bookstores, as well as directly to students through Textbooks.com.
It also offers First Day and First Day Complete access programs; BNC OER+, a turnkey solution for colleges and universities, that offers digital content, such as videos, activities, and auto-graded practice assessments; and general merchandise, including collegiate and athletic apparel, school spirit products, lifestyle products, technology products, supplies, and convenience items.
In addition, the company sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions; direct-to-student subscription-based writing services; and bartleby, a direct-to-student subscription-based offering that includes textbook solutions, expert questions and answers, AI-based writing assistance, and tutoring services.
As of June 29, 2021, it operated 769 physical college and university bookstores; and 648 virtual bookstores. The company also operates 148 True Spirit e-commerce websites; pop-up retail locations; and 77 customized cafés and 12 stand-alone convenience stores.
Website: www.bned.com
Latest 10-k report: https://sec.report/Document/0001634117-21-000041/
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for BNED in the last 3 months, the stock has an average price target of $7.00, which is nearly 153% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders Bought Shares Worth $584.0K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Increased Holdings by 653.3K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The return of in-person learning, and other tailwinds like expanded partnerships with leading Universities along with momentum in its digital solutions.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as purple 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.
BNED – Daily Chart
#2 Bullish RSI: The RSI is above 50 and moving higher, 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 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This is a possible bullish indication.
BNED – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 PETV is above the price of $2.80.
Target Prices: Our first target is $3.70. If it closes above that level, the second target price is $4.50.
Stop Loss: To limit risk, place a stop loss at $2.20. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 61%.
For a risk of $0.60, our first target reward is $0.90, 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. BNED reported a net loss of $(131.8) million during the 52 weeks ended May 1, 2021, and a net loss of $(38.3) million during the 53 weeks ended May 2, 2020.
BNED – Consolidated Statements of Operations
- The company has ongoing legal proceedings. Between January 22, 2020, and June 15, 2020, thirteen purported class action complaints were filed in the United States District Court for the District of Delaware, the United States District Court for the District of New Jersey, and the United States District Court for the Northern District of Illinois against the Company. The plaintiffs are retailers of collegiate course materials or current or former college students. The plaintiffs claim that the Company and the other defendants violated Section 1 of the Sherman Act (15 U.S.C. § 1), Section 2 of the Sherman Act (15 U.S.C. § 2), Section 13(a) of the Robinson-Patman Act (15 U.S.C. §13(a)), and various state antitrust and unfair trade practices laws for alleged activities in connection with inclusive access and the sale of course materials to universities and their students.
- The company faces significant competition from other third-party sellers and local bookstores, as well as direct-to-student platforms including, bn.com, the e-commerce platform of Barnes & Noble, Inc.; Chegg.com, an online textbook rental company; publishers, including Cengage Learning, Pearson Education and McGraw-Hill Education, which bypass the traditional retail distribution channel by selling directly to students and institutions. BNED also face competition from eTextbooks/digital content providers, VitalSource Technologies, Inc., and Red Shelf. The company’s wholesale business competes with Amazon, BBA Solutions, Nebraska Book Company, and Texas Book Company.
- Despite being a loss-making company, the executives are being paid significant compensation.
BNED – 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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