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: Desktop Metal, Inc. (NYSE: DM)
Today’s penny stock pick is the computer hardware company, Desktop Metal, Inc. (NYSE: DM).
Desktop Metal, Inc. manufactures and sells additive manufacturing technologies for engineers, designers, and manufacturers in the Americas, Europe, the Middle East, Africa, and the Asia- Pacific. The company offers Production System, an industrial manufacturing solution; Shop System, a mid-volume binder jetting platform; X-series platform for serial production binder jet 3D printed metal, ceramic, or composite parts, balancing speed, and quality; Studio System, an office metal 3D printing system; and Desktop Metal Furnace, which is paired with the Studio System and binder jetting solutions to create turnkey metal additive manufacturing solutions.
It also provides Xtreme 8K platform, designed for industrial, high-temperature production of end-use photopolymer parts, and uses high-powered light sources with a water-cooled digital light processing (DLP) chip; Einstein series, designed for dental professionals which offers 3D printing; and Envision One platform, which consists of various models for high-temperature and large part processing, enables high-volume production of end-use photopolymer parts.
In addition, the company offers various additional DLP solutions, including the P4K platform and the D4K Pro platform, for a range of production volumes, and industrial and healthcare end-use applications; S-Max and S-Max Pro platforms, which provide digital casting solutions; S-Max Flex platform, a robotic 3D printing solution for digital casting applications; S-Print, an entry-level solution for prototypes and small series production in digital casting applications; and 3D-Bioplotter platform which offers biofabrication solution.
Further, it provides binder jetting materials, photopolymer resins, BMD materials, and bioprinting materials. It serves automotive, aerospace, healthcare, consumer products, heavy industry, machine design, research and development, and other industries.
Website: https://www.desktopmetal.com
Latest 10-k report: https://ir.desktopmetal.com/sec-filings/all-sec-filings/content/0001558370-23-002567/dm-20221231x10k.htm
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for DM in the last 3 months, the stock has an average price target of $2.03.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company cut its workforce by 15% and is expected to save $50M in 2023. Four facilities are slated to be closed and consolidated into hub locations in the United States.
- The reduction plan will improve margins, reduce COGS, and operating expenses and strengthen Desktop Metal’s position as a leader in Additive Manufacturing 2.0. The cost reduction initiative is currently on track to deliver $100 million in aggregate.
- DM Initiated full-year 2023 revenue guidance of between $210 and $260 million.
- Upcoming Q1 earnings.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
DM – 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 MAs: The stock is currently above its 50-day as well as 200-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 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 looks like a good area for the stock to move higher.
DM – Weekly Chart
#6 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 DM is above the price of $2.50.
Target Prices: Our first target is $3.50. If it closes above that level, the second target price is $4.50.
Stop Loss: To limit risk, place a stop loss at $1.90. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 80%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $2.00. 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. DM reported net losses of $740.3 million and $240.3 million for the years ended December 31, 2022, and 2021, respectively.
DM – Consolidated Statements of Operations
- The company has multiple ongoing legal proceedings; Goldstein v. The ExOne Company, Campanella v. The ExOne Company et al., Luongo v. Desktop Metal, D. Mass., Case No. 1:21-cv-12099-IT; Hathaway v. Desktop Metal, D. Mass., Case No. 1:22-cv-10059-IT; Guzman-Martinez v. Desktop Metal, D. Mass, Case No. 1:22-cv-10173, Xie v. Desktop Metal, Case No. 1:22-cv-10297-IT, Keyser v. Fulop, et al., Case No. 1:22-cv-11117; Qi v. Fulop, et al., Case No. 1:22-cv-1118, etc.
- Hedge Funds Decreased Holdings by 420.7K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
DM – 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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