This High Risk / High Reward Stock Looks Poised for a Breakout

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: The RealReal Inc. (NASDAQ: REAL)

Today’s penny stock pick is the online and brick-and-mortar marketplace for authenticated luxury consignment, The RealReal Inc. (NASDAQ: REAL).

The RealReal Inc. (NASDAQ: REAL) operates an online marketplace for consigned luxury goods in the United State. It offers various product categories, including women’s, men’s, kids’, jewelry and watches, and home and art products.

Website:  https://www.therealreal.com

Latest 10-k report:  https://sec.report/Document/0001573221-22-000041/

Analyst Consensus: As per TipRanks Analytics, based on 7 Wall Street analysts offering 12-month price targets for REAL in the last 3 months, the stock has an average price target of $7.57, which is nearly 210% upside from current levels.

Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • Multiple analysts gave a ‘Buy’ rating and a triple-digit target upside for the stock.

    Analysts | Source: TipRanks.com

  • Hedge Funds Increased Holdings by 70.6K 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: 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 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.

REAL – Daily Chart

#2 Bullish RSI: The RSI is moving higher from oversold levels and is currently nearing 50, indicating possible bullishness.

#3 Bullish Stoch:  The %K line of the stochastic is above the %D line, and is also moving higher from oversold levels, indicating possible bullishness.

#4 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.

REAL – Weekly Chart

#5 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.

#6 Oversold RSI: The RSI is currently moving higher from oversold levels, indicating that a reversal may be imminent.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for REAL is above the price of $3.30. This is marked as a green color dotted line in the charts.

Target Prices: Our first target is $5.30. If it closes above that level, the second target price is $6.50.

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 61% to 97%.

For a risk of $1.10, our first target reward is $2.00, and the second target reward is $3.20. 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:

  1. The company has a history of net losses. REAL experienced net losses of $98.4 million, $175.8 million, and $236.1 million in 2019, 2020, and 2021, respectively, and as of December 31, 2021, the company had an accumulated deficit of $768.1 million.
  2. Corporate Insiders Sold Shares Worth $89.5K in the Last 3 Months.

    Insiders | Source: TipRanks.com

  3. The company has significant competition from the likes of Farfetch, Vestiaire Collective, Grailed, eBay, Depop (owned by Etsy), and legacy luxury brands like LVMH. Moreover, the barrier to entry in this market is quite low, therefore, there will only be more and more competitors going forward.
  4. Despite being a loss-making company, the executives are being paid significant compensation.
  5. There are strong headwinds from the macro environment. Higher fuel cost is already weighing heavily on the company’s bottom line. As the economy continues to weaken and consumer confidence falls, it is likely that discretionary spending will contract quickly.
  6. The company has multiple ongoing legal proceedings.
    1. On November 14, 2018, Chanel, Inc. sued the Company in the U.S. District Court for the Southern District of New York. The Complaint alleged federal and state law claims of trademark infringement, unfair competition, and false advertising.
    2. On September 10, 2019, a purported shareholder class action complaint was filed against the company, its officers and directors, and the underwriters of its IPO in the Superior Court of the State of California in the County of San Mateo. Three additional purported class actions, also alleging claims arising from the IPO were subsequently filed in Marin County and San Francisco County Superior 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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