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: RF Industries, Ltd. (NASDAQ: RFIL)
Today’s penny stock pick is the interconnect products manufacturer, RF Industries, Ltd. (NASDAQ: RFIL).
RF Industries, Ltd. designs, manufactures, and markets interconnect products and systems in the United States, Canada, Italy, Mexico, and internationally. The company operates through two segments, RF Connector and Cable Assembly, and Custom Cabling Manufacturing and Assembly. The RF Connector and Cable Assembly segment primarily designs, manufactures, and distributes various coaxial connectors and cable assemblies that are integrated with coaxial connectors.
The Custom Cabling Manufacturing and Assembly segment designs, manufactures, markets, and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, energy-efficient cooling systems for wireless base stations and remote equipment shelters, and custom designed pole-ready 5G small cell integrated enclosures.
It also manufactures and sells custom and standard cable assemblies, hybrid fiber optic power solution cables, adapters, and electromechanical wiring harnesses for communication, computer, LAN, automotive, and medical equipment.
In addition, the company designs and manufactures cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation, and military customers. It also designs and manufactures quality connectivity solutions for telecommunications and data communications distributors.
The company sells its products through warehousing distributors and in-house marketing and sales team. It serves telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers, and original equipment manufacturers.
Website: https://www.rfindustries.com
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for RFIL in the last 3 months, the stock has an average price target of $6.00, which is nearly 23% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company’s recent Q2 report exceeded expectations. The company reported earnings per share of $0.13, beating the estimated EPS of $0.03 by 333.33%. Additionally, RF Industries’ revenue increased by $793 thousand compared to the same period last year.
- Corporate Insiders Bought Shares Worth $382.6K in the Last 3 Months.
Insiders | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
RFIL – 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 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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.
RFIL – 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 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 RFIL is above the price of $5.00.
Target Prices: Our first target is $5.90. If it closes above that level, the second target price is $6.70.
Stop Loss: To limit risk, place a stop loss at $4.50. Note that the stop loss is on a closing basis.
Our target potential upside is 18% to 34%.
For a risk of $0.50, our first target reward is $0.90, and the second target reward is $1.70. 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 is heavily dependent upon wireless and broadband communications providers. RFIL also depends on third-party contract manufacturers for a majority of its connector manufacturing needs.
- The company was formerly known as Celltronics, Inc. and changed its name to RF Industries, Ltd. in November 1990.
- On March 1, 2022, RFIL purchased Microlab from Wireless Telecom Group, Inc. for $24,250,000. The company had to enter into a Loan Agreement with the Credit Facility Lender and borrow around $17 million amount available under the Term Loan in order to fund the purchase of Microlab. The acquisition of Microlab may affect both the Company’s liquidity and its capital resources in the near future and pose risks associated with the inability to repay the loan on a timely basis.
- The company has customer concentration risk. For the year ended October 31, 2022, a wireless carrier customer accounted for approximately 20% of total sales.
- The company executives are being paid significant compensation.
RFIL – Executive Compensation
- Hedge Funds Decreased Holdings by 50.1K 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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