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: Iris Energy Limited (NASDAQ: IREN)
Today’s penny stock pick is the bitcoin mining data center operator, Iris Energy Limited (NASDAQ: IREN).
Iris Energy Limited is a Bitcoin mining company that builds, owns and operates data center infrastructure with a focus on entry into regions where it can access abundant and/or under-utilized renewable energy to power its operations. Iris Energy strives to support local communities, as well as the decarbonization of energy markets and the global Bitcoin network.
Website: https://irisenergy.co
Latest 10-k report: https://irisenergy.gcs-web.com/node/8641/html
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for IREN in the last 3 months, the stock has an average price target of $10.38, which is nearly 173% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company’s October 2023 monthly investor update included a partnership with WEKA to optimize generative AI workloads and an expansion to 9.4 EH/s. Iris Energy acquired 1.4 EH/s of Bitmain S21 miners and continued construction at their Childress site. The update highlighted improved revenue and operating hashrate.
- On November 22, 2023, Mike Colonnese, an analyst at HC Wainwright & Co., expressed optimism about Iris Energy and maintained a Buy rating on the stock.
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. Once the stock breaks out of the falling wedge pattern, it could move higher.
IREN – 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 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.
IREN – 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.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for IREN is above the price of $3.85.
Target Prices: Our first target is $4.60. If it closes above that level, the second target price is $5.20.
Stop Loss: To limit risk, place a stop loss at $3.40. Note that the stop loss is on a closing basis.
Our target potential upside is 19% to 35%.
For a risk of $0.45, our first target reward is $0.75, and the second target reward is $1.35. 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. IREN reported net losses of $171.9 million, $419.8 million, and $60.4 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. As of June 30, 2023, the company had accumulated losses of $654.3 million.
IREN – Consolidated Statements of Operations
- The company has ongoing legal proceedings. On December 14, 2022, a putative securities class action complaint naming the Company and certain of its directors and officers was filed in the U.S. District Court for the District of New Jersey. It contends that certain statements made by the Company and certain of its officers and directors, including in the Company’s IPO Registration Statement and Prospectus, were allegedly false or misleading and seek unspecified damages on behalf of the putative class.
- Hedge Funds Decreased Holdings by 278.9K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has a limited operating history, as it began Bitcoin mining only in 2019. IREN also needs additional capital to fulfill its capital or liquidity needs or grow its business and achieve expansion plans.
- IREN’s success will depend significantly on the price of Bitcoin, which is subject to risk and has historically been subject to significant price volatility, as well as several other factors.
- The company’s mining hardware suppliers have previously had, and may continue to have, operations in China, and China’s economic, political and social conditions, as well as changes in any government policies, laws and regulations, could have a material adverse effect on the company’s business. Additionally, international trade policies with China continue to be in flux, and a policy change could adversely affect the company’s business, prospects or operations.
- Despite being a loss-making company, the executives are being paid significant compensation.
IREN – 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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