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: Ring Energy, Inc. (NYSE: REI)
Today’s penny stock pick is the independent oil and natural gas company, Ring Energy, Inc. (NYSE: REI).
Ring Energy, Inc. engages in the acquisition, exploration, development, and production of oil and natural gas properties. The company has interests in 56,711 net developed acres and 2,668 net undeveloped acres in Andrews, Gaines, Crane, Ector, Winkler, and Ward counties, Texas; and 8,751 net developed acres and 12,405 net undeveloped acres in Yoakum County, Texas and Lea County, New Mexico.
It primarily sells its oil and natural gas production to end users, marketers, and other purchasers. The company was formerly known as Transglobal Mining Corp. and changed its name to Ring Energy, Inc. in March 2008.
Website: https://www.ringenergy.com
Latest 10-k report: https://www.ringenergy.com/investors/sec-filings/all-sec-filings/content/0001628280-24-009691/0001628280-24-009691.pdf
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for REI in the last 3 months, the stock has an average price target of $3.00, which is nearly 52% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company has been posting profits every year.
REI – Statements of Operations
- A potential upside in oil prices is expected over the coming months. Multiple rate cuts are likely coming in the next 12 to 18 months. This will support GDP growth and oil may trend higher. Factors of production cut by the OPEC and geopolitical tensions may also likely support the rally.
- As of 2023, Ring Energy reported 129.8mmboe in proved reserves. These reserves have a PV10 of $1.65 billion. In comparison, Ring Energy has a market valuation of $380 million. This indicates the possibility of steady growth in production.
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.
REI – 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 MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#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. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
REI – Weekly Chart
#5 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 REI is above the price of $2.03.
Target Prices: Our first target is $3.20. If it closes above that level, the second target price is $4.00.
Stop Loss: To limit risk, place a stop loss at $1.40. Note that the stop loss is on a closing basis.
Our target potential upside is 58% to 97%.
For a risk of $0.63, our first target reward is $1.17, and the second target reward is $1.97. 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 a defendant in a lawsuit in Harris County District Court, Houston, Texas, styled EPUS Permian Assets, LLC, v. Ring Energy, Inc., that was filed in July 2021.
- Hedge Funds Decreased Holdings by 15.7K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company’s operations use some of the latest horizontal drilling and completion techniques, which involve additional risks and uncertainties in their application compared to vertical drilling.
- REI operates in a highly competitive environment for acquiring properties and marketing oil and natural gas.
- The company has significant indebtedness. REI has a Credit Facility in place with $600 million in commitments from borrowings and letters of credit with Truist Bank as an Administrative Agent.
- A substantial percentage of REI’s proved properties are proved undeveloped (approximately 32%). The company will require significant additional capital to develop such properties before they may become productive.
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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