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: GrowGeneration Corp. (NASDAQ: GRWG)
Today’s penny stock pick is the retail hydroponic and organic gardening stores, GrowGeneration Corp. (NASDAQ: GRWG).
GrowGeneration Corp. engages in the marketing and distribution of nutrients, growing media, lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products. It operates a chain of stores in California, Colorado, Michigan, Maine, Oklahoma, Oregon, Washington, Mississippi, Missouri, Arizona, Rhode Island, Florida, Massachusetts, Virginia, New Jersey, and New Mexico, as well as growgeneration.com, an online superstore for cultivators, a wholesale business for resellers, and HRG Distribution and MMI.
Website: https://www.growgeneration.com
Latest 10-k report: https://ir.growgeneration.com/sec-filings/all-sec-filings/content/0001628280-23-008178/grwg-20221231.htm
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for GRWG in the last 3 months, the stock has an average price target of $4.00, which is nearly 33% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The U.S. Department of Health and Human Services wrote to the Drug Enforcement Agency asking for cannabis to be classified as a Schedule III drug, as opposed to its current Schedule I.
- GRWG had recently announced a multi-year partnership with GrowLife, Inc. PHOT. The deal will position both companies as early adopters in the rapidly increasing mushroom farming industry by focusing on the development and selling of mycology supplies.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: 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 currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
GRWG – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#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.
GRWG – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#7 Bullish RSI: In the weekly chart, the RSI is moving higher from oversold levels and is nearing 50. 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 GRWG is above the price of $3.05.
Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $4.70.
Stop Loss: To limit risk, place a stop loss at $2.50. Note that the stop loss is on a closing basis.
Our target potential upside is 31% to 54%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $1.65. 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. Net loss for the year ended December 31, 2022, was approximately $163.7 million, compared to net income of approximately $12.8 million for the year ended December 31, 2021, a decrease of approximately $176.5 million.
GRWG – Consolidated Statements of Operations
- The company was formerly known as Easylife Corp. GrowGeneration Corp.
- The company is involved in lawsuits and claims. In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option with TGC Systems, LLC. Among other claims, Total Grow alleges that the Company is liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company.
- The specialty gardening and hydroponic product industry is highly competitive. This could prohibit GRWG from developing or increasing its customer base.
- Despite being a loss-making company, the executives are being paid significant compensation.
GRWG – 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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