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: Dragonfly Energy Holdings Corp. (NASDAQ: DFLI)
Today’s penny stock pick is the deep cycle lithium-ion batteries manufacturer, Dragonfly Energy Holdings Corp. (NASDAQ: DFLI).
Dragonfly Energy Holdings Corp. manufactures and supplies deep cycle lithium-ion batteries for recreational vehicles, marine vessels, off-grid installations, and other storage applications. The company also provides lithium power systems, including solar panels, chargers and inverters, system monitoring, alternator regulators, and accessories. It offers its products under the Dragonfly Energy, Battle Born, and Wakespeed brands.
Website: https://dragonflyenergy.com
Latest 10-k report: https://investors.dragonflyenergy.com/regulatory-filings/sec-filings/sec-filings-details/default.aspx?FilingId=16567220
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for DFLI in the last 3 months, the stock has an average price target of $9.00, which is nearly 173% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company is set to join the Russell 3000 effective after the US market opens on June 26, 2023.
- DFLI’s s Battle Born Batteries have become popular in the RV industry. The success in the RV world has led to the adoption of Battle Born Batteries in other industries like marine vessels and trucking. The battery has now been integrated into popular brand offerings like Airstream, Tiffin, Leisure Travel Vans, and Keystone RV.
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 with historic high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
DFLI – 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 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.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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.
DFLI – Weekly Chart
#6 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.
#7 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 DFLI is above the price of $3.45.
Target Prices: Our first target is $4.60. If it closes above that level, the second target price is $5.50.
Stop Loss: To limit risk, place a stop loss at $2.80. Note that the stop loss is on a closing basis.
Our target potential upside is 33% to 59%.
For a risk of $0.65, our first target reward is $1.15, and the second target reward is $2.05. 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. DFLI’s net loss for the year ended December 31, 2022, was $39.6 million.
DFLI – Consolidated Statements of Operations
- The company is dependent on a single manufacturing facility. If the facility becomes inoperable for any reason, or the company’s automation and expansion plans do not yield the desired effects, DFLI’s ability to produce its products could be negatively impacted.
- Due to certain material weaknesses, the company’s management had concluded that its internal control over financial reporting was not effective as of December 31, 2022.
- The company recently announced a 7.17 million share offering. This generally has a negative effect on a stock’s price and original investors’ sentiment.
- Hedge Funds Decreased Holdings by 62.3K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
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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