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: Meta Materials Inc. (NASDAQ: MMAT)
Today’s penny stock pick is the company that invents, designs, develops, and manufactures various functional materials and nanocomposites, Meta Materials Inc. (NASDAQ: MMAT).
Meta Materials Inc. products include metaAIR, a laser glare protection eyewear; NANOWEB, a transparent conductive film; holoOPTIX, a holographic optical element; glucoWISE, a non-invasive glucose measurement device; and metaSURFACE, which allows an enhancement in signal to noise ratio of up to 40 times for magnetic resonance imaging scans.
The company also develops and produces nano-optic structures and color-shifting foils that are used in authentication and brand protection applications in various markets, including banknotes, secure government documents, and commercial branding, as well as engages in the research, development, and manufacture of smart materials. Its customers are OEM providers in various industries, including aerospace, automotive, consumer electronics, communications, energy, banknote and brand security, and medical devices.
Website: https://metamaterial.com
Analyst Consensus: Not Covered By Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- Rumors of a buyout.
- A potential short squeeze.
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 with a high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
MMAT – 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.
MMAT – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 Oversold RSI: In the weekly chart, the RSI is currently moving higher from oversold levels. 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 MMAT is above the price of $4.15.
Target Prices: Our first target is $5.80. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss at $3.20. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 69%.
For a risk of $0.95, our first target reward is $1.65, and the second target reward is $2.85. 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. MMAT incurred net losses of $398.2 million and $79.1 million for the twelve months ended December 31, 2023, and 2022, respectively. As of December 31, 2023, the company had an accumulated deficit of $609.0 million.
MMAT – Consolidated Statements of Operations
- On March 20, 2023, MMAT received a notification letter from Nasdaq notifying that, because the closing bid price for the common stock was below $1.00 per share for 30 consecutive trading days, the company was not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2). Consequently, the stock had to do a 1-for-100 reverse stock split to regain Nasdaq compliance.
- The company has announced a special meeting of stockholders on April 15. The meeting is aimed at increasing the total number of authorized shares of MMAT stock to 250 million from 10 million – a significant increase of 2,400%. This could cause significant dilutive effects. The company had also recently announced a $3.4 million direct offering.
- Hedge Funds Decreased Holdings by 5.4K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- A shareholder of spinoff Next Bridge Hydrocarbons (NBH) has filed a class-action lawsuit against MMAT and several of its executives. These include former NBH President George Palikaras and former Chairman and Chief Financial Officer Ken Rice. The lawsuit alleges that NBH’s registration statement contained false and misleading statements.
- Despite being a loss-making company, the executives are being paid significant compensation.
MMAT – Executive Compensation
- The company has customer concentration risk. For the year ended December 31, 2023, revenue from two customers, each of which individually represented more than 10% of the total revenue, accounted for $6.8 million or 85.1% of total revenue.
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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