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: Rackspace Technology, Inc. (NASDAQ: RXT)
Today’s penny stock pick is the multi cloud technology services company, Rackspace Technology, Inc. (NASDAQ: RXT).
Rackspace Technology, Inc. operates through two segments, Multicloud Services and Apps & Cross Platform. The Multicloud Services segment provides public and private cloud managed services, which allow customers to determine, manage, and optimize the right infrastructure, platforms, and services; and professional services related to designing and building multi cloud solutions and cloud-native applications.
The Apps & Cross Platform segment includes managed applications; managed security services in the areas of security threat assessment and prevention, threat detection and response, rapid remediation, governance, and risk and compliance assistance across multiple cloud platforms, as well as privacy and data protection services, including detailed access restrictions and reporting; data services; and professional services related to designing and implementing application, security, and data services.
Website: https://www.rackspace.com
Latest 10-k report: https://ir.rackspace.com/sec-filings/sec-filing/10-k/0001810019-23-000034
Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for RXT in the last 3 months, the stock has an average price target of $2.61, which is nearly 7% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders placed Informative Buys of Shares Worth $49.8K in the Last 3 Months. RXT’s Director Anthony C. Roberts purchased 22,350 shares of Rackspace Technology’s stock on August 15th at an average cost of $2.23 per share, for a total transaction of $49,840.50.
Insiders | Source: TipRanks.com
- Barclays raised their target price from $1.00 to $2.00 and gave the company an “underweight” rating. Deutsche Bank Aktiengesellschaft raised their target price from $1.50 to $2.50. Credit Suisse Group raised their target price from $3.50 to $4.15 and gave the stock an “outperform” rating.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern: 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.
RXT – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#6 Downtrend Channel Breakout: The weekly chart shows that the stock has broken out of a downtrend channel, which is shown in pink color lines. This is a possible bullish indication.
RXT – Weekly Chart
#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 RXT is above the price of $2.75.
Target Prices: Our first target is $3.70. If it closes above that level, the second target price is $4.80.
Stop Loss: To limit risk, place a stop loss at $2.20. Note that the stop loss is on a closing basis.
Our target potential upside is 35% to 75%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $2.05. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. RXT incurred net losses of $245.8 million, $218.3 million, and $804.8 million in the fiscal years ended December 31, 2020, 2021, and 2022, respectively.
RXT – Consolidated Statements of Net Losses
- Despite being a loss-making company, the executives are being given millions in compensation.
RXT – Executive Compensation
- Hedge Funds Decreased Holdings by 681.0K 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.