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: Audioeye Inc. (NASDAQ: AEYE)
Today’s penny stock pick is the digital accessibility platform, Audioeye Inc. (NASDAQ: AEYE).
Audioeye Inc. provides patented, internet content publication, distribution software, and related services to Internet, print, broadcast, and other media to people regardless of their network connection, device, location, or disabilities in the United States. Its software and services enable conversion of digital content into accessible formats and allows for real time distribution to end users on any Internet connected device.
The company offers AudioEye, an always-on testing, remediation, and monitoring solution that improves conformance with web content accessibility guidelines; identifies and fixes the common accessibility errors and addresses a range of disabilities including dyslexia, color blindness, epilepsy, and others; and provides additional solutions to provide for enhanced compliance and accessibility, including periodic manual auditing, manual remediations, and legal support services, as well as PDF remediation services and audit reports to help customers with their digital accessibility needs.
The company serves small- and medium-sized businesses, corporate enterprises, non-profit organizations, and federal government agencies, as well as federal, state, and local governments and agencies through content management system partners, platform and agency partners, authorized resellers, and the marketplace.
Website: www.audioeye.com
Latest 10-k report: https://sec.report/Document/0001410578-22-000353/
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for AEYE in the last 3 months, the stock has an average price target of $8.50, which is nearly 74% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company’s Board of Directors authorized the repurchase of up to $3 million of the Company’s outstanding shares of common stock expiring on June 30, 2024.
- Hedge Funds Increased Holdings by 3.7K 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 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.
AEYE – 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 MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 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.
AEYE – 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 AEYE is above the price of $5.15.
Target Prices: Our first target is $6.40. If it closes above that level, the second target price is $7.50.
Stop Loss: To limit risk, place a stop loss below $4.40. Note that the stop loss is on a closing basis.
Our target potential upside is 24% to 46%.
For a risk of $0.75, our first target reward is $1.25, and the second target reward is $2.35. 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. AEYE incurred net losses of $14,209,000 for the year ended December 31, 2021. As of December 31, 2021, the company had an accumulated deficit of $71,293,000.
AEYE – Statements of Operations
- As of December 31, 2021, AEYE had $19.0 million in cash, necessitating the company to raise additional capital through future private or public equity offerings, strategic alliances, or debt financing. This could result in dilution.
- AEYE’s business greatly depends on the growth of online services, Internet of Things (IOT), kiosks, streaming, and other next-generation Internet-based applications, and there is a risk that such growth may not occur as expected, or at all.
- Despite being a loss-making company, the executives are being paid significant compensation.
AEYE – Executive Compensation
- In 2016, the company had to settle the consolidated securities class action lawsuit pending in the United States District Court for the District of Arizona, titled In re AudioEye, Inc. Sec. Litig. The consolidated case was brought against the Company and two former officers following the restatement of the Company’s 2015 quarterly financial statements.
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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