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: Quantum Corporation (NASDAQ: QMCO)
Today’s penny stock pick is the data storage, management, and protection company, Quantum Corporation (NASDAQ: QMCO).
Quantum Corporation provides products for storing and managing digital video and unstructured data in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
The company offers Myriad All-Flash File and Object Storage Software for high performance enterprise unstructured data applications such as AI, machine learning, and data analytics; Unified Surveillance Platform Software that unifies compute and storage for video surveillance recording, storage, and analytics; StorNext Hybrid Flash/Disk File Storage Software for video editing, post-production, and streaming applications, as well as digital file archives; and CatDV Asset Management Software for indexing, cataloging, enriching video, audio, and image files, and workflow orchestration.
It also provides ActiveScale Object Storage Software that scalable and durable storage for long term data preservation and protection; DXi Backup Appliances to build backup appliances for high-speed backup and recovery and multisite data protection; and Scalar Tape Storage that secure storage for long term data archiving and offline data protection which are used by hyperscalers and enterprises.
In addition, the company sells linear tape-open (LTO) a tape drives for small business data protection and archiving; and LTO media for use in tape storage systems. Further, it offers global support, managed services, customer support agreements, software subscriptions, installation, education, and consulting and training services, as well as Quantum-as-a-Service.
The company sells its products through a network of distributors, value-added resellers, direct marketing resellers, original equipment manufacturers, and other suppliers, as well as directly to corporate entities and government agencies. It has a partnership with Tiger Surveillance to deliver end-to-end solutions for long-term retention and archiving of video surveillance data.
Website: https://www.quantum.com
Latest 10-k report: https://investors.quantum.com/financial-information/sec-filings/content/0000709283-23-000013/0000709283-23-000013.pdf
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for QMCO in the last 3 months, the stock has an average price target of $1.00, which is nearly 47% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- XENON Systems, a leading high-performance computing and complex data storage specialist, has purchased QMCO’s Quantum Myriad™, an all-flash, scale-out, file and object storage software platform.
- Rumors of an upcoming deal with NVDA.
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 with a historic high volume. This is marked as purple color lines. This is a possible bullish indication.
QMCO – Daily Chart
#2 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#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.
QMCO – Weekly Chart
#6 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.
#7 MACD above Signal Line: In the weekly chart as well, 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 QMCO is above the price of $0.70.
Target Prices: Our first target is $1.20. If it closes above that level, the second target price is $1.60.
Stop Loss: To limit risk, place a stop loss at $0.40. Note that the stop loss is on a closing basis.
Our target potential upside is 71% to 129%.
For a risk of $0.30, our first target reward is $0.50, and the second target reward is $0.90. 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. QMCO reported net losses of approximately $37.9 million and $32.3 million for the fiscal years ended March 31, 2023, and 2022, respectively.
QMCO – Consolidated Statements of Comprehensive Loss
- QMCO has ongoing legal proceedings against Realtime Data LLC d/b/a IXO; and Starboard Value LP, Starboard Value, and Opportunity Master Fund Ltd. The company also has certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property.
- Hedge Funds Decreased Holdings by 1.2M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has customer concentration risk. QMCO’s product sales have been and continue to be concentrated among a small number of channel partners, direct end-users, and original equipment manufacturers; some of which are also competitors.
- The company has significant debt.
QMCO – Debt
- Despite being a loss-making company, the executives are being paid significant compensation.
QMCO – 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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