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: Fuel Tech, Inc. (NASDAQ: FTEK)
Today’s penny stock pick is the global technology company in the air pollution (APC) business, Fuel Tech, Inc. (NASDAQ: FTEK).
Fuel Tech, Inc. provides boiler optimization, efficiency improvement, and air pollution reduction and control solutions to utility and industrial customers worldwide. The company operates through two segments, Air Pollution Control Technology and FUEL CHEM Technology.
The Air Pollution Control Technology segment offers technologies to reduce nitrogen oxide (NOx) emissions in flue gas from boilers, incinerators, furnaces, and other stationary combustion sources; over-fire air systems; NOxOUT and HERT selective non-catalytic reduction systems; selective catalytic reduction systems comprising ammonia injection grid, and graduated straightening grid systems; I-NOx systems; ESP Processes and Services; ULTRA technology; and flue gas conditioning systems.
The FUEL CHEM Technology segment provides programs to improve the efficiency, reliability, fuel flexibility, boiler heat rate, and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity, and acid plume, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter, sulfur dioxide, and carbon dioxide through the addition of chemicals into the furnace using TIFI targeted in-furnace injection technology.
This segment offers its FUEL CHEM program for plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, and university and district heating markets; and the owners of boilers, furnaces, and other combustion units.
Website: https://www.ftek.com
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/846913/000143774923005675/ftek20221231_10k.htm
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for FTEK in the last 3 months, the stock has an average price target of $4.00, which is nearly 156% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The increasing demand for pollution control equipment
- Revenues for 2022 increased by 11%. The 2023 revenue is anticipated to surpass $30 million. The company also has a strong balance sheet with cash and investments equal to almost 90% of its market capitalization.
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.
FTEK – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, 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 looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
FTEK – 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 Bullish RSI: The RSI is above 50 and moving higher, 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 FTEK is above the price of $1.60.
Target Prices: Our first target is $2.20. If it closes above that level, the second target price is $3.00.
Stop Loss: To limit risk, place a stop loss at $1.30. Note that the stop loss is on a closing basis.
Our target potential upside is 38% to 88%.
For a risk of $0.30, our first target reward is $0.60, and the second target reward is $1.40. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been reporting net losses in recent years.
FTEK – Consolidated Statements of Operations
- The company lacks diversification, as it has only two broad technology segments that provide advanced engineering solutions.
- The company’s customer base is highly concentrated. In 2022, FTEK’s five largest customers accounted for approximately 61% of its net revenues, with the largest customer accounting for approximately 22% of its net revenues.
- FTEK faces substantial competition. Competition in the Air Pollution Control market comes from competitors utilizing their own NOx reduction processes, including SCR systems, SNCR systems, Low NOx Burners, Over-Fire Air systems, ammonia and urea-based delivery systems for SNCR and SCR. Competition in FUEL CHEM markets includes chemicals sold by specialty chemical companies, such as Imerys, Environmental Energy Services, Inc., and SUEZ Water Technologies.
- Despite being a loss-making company, the executives are being paid significant compensation.
FTEK – 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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