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: Cantaloupe Inc. (NASDAQ: CTLP)
Today’s penny stock pick is the digital payments and software services company, Cantaloupe Inc. (NASDAQ: CTLP).
Cantaloupe Inc. provides technology solutions for the unattended retail market. The company offers integrated solutions for payments processing, logistics, and back-office management. It also provides ePort, an integrated payment device that is deployed in self-service, unattended market applications, such as vending, micro-markets, amusement, arcade, commercial laundry, air/vacuum, car wash, and others, which facilitates digital payments; and integrated software services for payment or asset tracking devices.
In addition, the company offers ePort G11 cashless kit, a 4G LTE digital payment device or payment and consumer engagement applications; The ePort G10-Chip, a digital reader that accepts contact EMV (chip cards) and contactless EMV (tap) payment methods; ePort Engage series, which includes digital touchscreen devices that provide networking, security, and interactivity payment methods; and Yoke POS, a point-of-sale solution for any micro market or self-service business. It serves vending machine, micro-market, car wash, electric vehicle charging stations, commercial laundry, kiosk, amusement, and entertainment companies.
Website: https://www.cantaloupe.com
Latest 10-k report: https://sec.report/Document/0001628280-22-029284/ (Amended), https://sec.report/Document/0001628280-22-026591/ (original)
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for CTLP in the last 3 months, the stock has an average price target of $10.00, which is nearly 160% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company acquired Three Square Market (32M) for $41M, which was funded with 90% cash and 10% stock. 32M offers software and self-service kiosk-based point of sale and payment solutions
- The company reported encouraging 2023 projections. The FY23 guidance has been pegged at +10%-15% revenue growth or $225m-$235m. Underlying the guidance is a +13%-17% subscription and transaction revenue growth projection (to $191m-$198m), which is set to drive adj EBITDA of $12m-$17m (well above the $9.9m in FY22).
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.
CTLP – 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 Bullish RSI: The RSI is above 50 and moving higher, 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 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.
CTLP – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart and is also moving higher from oversold levels, 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 CTLP is above the price of $3.90.
Target Prices: Our first target is $5.00. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $3.30. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 54%.
For a risk of $0.60, our first target reward is $1.10, and the second target reward is $2.10. 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. For fiscal years 2022, 2021, and 2020, CTLP incurred a net loss of $1.7 million, $8.7 million, and $40.6 million, respectively.
CTLP – Consolidated Statements of Operations
- The company was formerly known as USA Technologies, Inc and changed its name to Cantaloupe, Inc.
- Hedge Funds Decreased Holdings by 371.1K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has had several CFO departures in recent years and the disclosure of accounting issues that have had a material impact on reported numbers. The CEO Sean Feeney also tended his resignation recently.
- By letter dated October 12, 2018, Peter D’Arcy, a purported shareholder of the Company, demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s current and former officers and directors for breach of fiduciary duties. The letter alleged the officers and directors made false and misleading statements that failed to disclose that the Company’s accounting treatment, financial reporting, and internal controls related to certain of the Company’s contractual agreements would result in an internal investigation and would delay the Company’s filing of its 2018 Form 10-K and that the Company failed to maintain adequate internal controls.
- Despite being a loss-making company, the executives are being paid significant compensation.
CTLP – 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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