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: Newegg Commerce, Inc. (NASDAQ: NEGG)
Today’s penny stock pick is the electronics-focused e-retailer, Newegg Commerce, Inc. (NASDAQ: NEGG).
Newegg Commerce, Inc. offers desktops, laptops, gaming laptops, peripherals, and accessories; CPU/processors, graphic cards, motherboards, storage devices, and computer accessories; and software, virtual reality, gaming consoles, networking, digital games, home appliances, gaming desks/chairs, and TVs. It provides supply chain third-party services, such as Shipped by Newegg, offers warehousing and fulfillment services; Newegg Logistics, provides warehousing, inventory management, order processing, packing, and shipping; and Newegg Staffing, offers clerical, manufacturing, and logistics employee placement.
In addition, the company operates B2C platforms, including Newegg.com, an online e-commerce platform; Newegg.ca, an e-commerce platform focusing on IT/CE products; and Newegg Global, as well as mobile apps; and B2B platforms comprising NeweggBusiness.com. It sells its products under the Asus, MSI, HP, Lenovo, Acer, Microsoft, Samsung, LG, Gigabyte, Logitech, Intel, AMD, MSI, Corsair, ASRock, Western Digital, Seagate, Samsung, G.Skill, Meta, PlayStation, Dyson, Netgear, Nintendo, H&R Block, and Adobe brands.
Website: https://www.newegg.com/
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/1474627/000121390024035840/ea0203516-20f_newegg.htm
Analyst Consensus: Not Covered by Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- NEGG’s price is anticipated to be triggered by GameStop’s sudden meme rally. Meme stocks are companies that have gained a cult-like following on social media, which can influence stock prices.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
NEGG – 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 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.
NEGG – 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 NEGG is above the price of $1.15.
Target Prices: Our first target is $1.85. If it closes above that level, the second target price is $2.40.
Stop Loss: To limit risk, place a stop loss at $0.75. Note that the stop loss is on a closing basis.
Our target potential upside is 61% to 109%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.25. 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. NEGG incurred net losses of $59.0 million and $57.4 million in 2023 and 2022, respectively.
NEGG – Consolidated Statements of Operations
- The company has ongoing legal proceedings. In September 2021, two subsidiaries of the Company were served with a complaint filed in the Superior Court for Los Angeles County, California, alleging various wage and hour violations and seeking to certify a class action. In October 2021, a second complaint was filed as a representative action pursuant to the Private Attorneys General Act of 2004 against the same two subsidiaries in the Superior Court for Los Angeles County, California, alleging various violations of the California Labor Code.
- The company does not have insider ownership, indicating a lack of confidence by the company insiders.
NEGG – Ownership
- On November 6, 2023, NEGG received a letter from Nasdaq notifying that the company was not in compliance with the Minimum Bid Price Requirement. Again, on May 10, 2024, the company received yet another non-compliance notification.
- Despite being a loss-making company, the executives are being paid significant compensation. For the year ended December 31, 2023, the aggregate cash compensation accrued for directors was approximately $1.0 million; for executive officers was approximately $5.4 million; and for the CEO was approximately $2.6 million.
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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