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: Desktop Metal, Inc. (NYSE: DM)
Today’s penny stock pick is the American technology company that designs and markets 3D printing systems, Desktop Metal, Inc. (NYSE: DM).
Desktop Metal, Inc. manufactures and sells additive manufacturing technologies for engineers, designers, and manufacturers in the Americas, Europe, the Middle East, Africa, and the Asia- Pacific. The company offers Shop System, an entry-level metal 3D printing using binder jetting; X-series platform that provides binder jet 3D printing of specialty materials, including metals and ceramics, and tools; and P-Series offers high-speed metal 3D printing.
It also provides Einstein series, designed for dental professionals which offers 3D printing; ETEC Xtreme 8K platform, a DLP printer with two 385 nm overhead projectors for high-volume production; ETEC Pro XL for industrial polymer 3D printer; S-Max and S-Max Pro platforms, which provides digital casting solutions; and 3D-Bioplotter platform which offers biofabrication solution. In addition, the company offers binder jetting materials, photopolymer resins, BMD materials, and bioprinting materials. It serves automotive, aerospace, healthcare, consumer products, heavy industry, machine design, research and development, and other industries.
Website: https://www.desktopmetal.com/
Latest 10-k report: https://ir.desktopmetal.com/sec-filings/annual-reports/content/0001558370-24-003411/0001558370-24-003411.pdf
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for DM in the last 3 months, the stock has an average price target of $5.00.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The Delaware Court of Chancery ruled in DM’s favor in its litigation against Nano Dimension relating to the pending merger between both companies.
- Corporate Insiders placed Informative Buys of Shares Worth $7.4M in the Last 3 Months.
Insiders | Source: TipRanks.com
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.
DM – 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.
DM – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 DM is above the price of $5.00.
Target Prices: Our first target is $7.00. If it closes above that level, the second target price is $9.00.
Stop Loss: To limit risk, place a stop loss at $3.80. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 80%.
For a risk of $1.20, our first target reward is $2.00, and the second target reward is $4.00. 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. DM reported net losses of $323.3 million, $740.3 million, and $240.3 million for the years ended December 31, 2023, 2022, and 2021 respectively.
DM – Consolidated Statements of Operations
- The company has ongoing legal proceedings. Four alleged shareholders of Desktop Metal stock had filed purported securities class action complaints in the United States District Court for the District of Massachusetts, alleging that Desktop Metal and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act by making false or misleading statements regarding EnvisionTEC’s manufacturing and product compliance practices and procedures. There had also been a whistleblower complaint relating to manufacturing and product compliance practices at its EnvisionTEC US LLC facility in Dearborn, Michigan.
- Hedge Funds Decreased Holdings by 3.3K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company had issued additional shares of its Class A common stock or securities convertible into Class A common stock pursuant to a variety of transactions, including acquisitions. This may dilute investors’ equity interest in the Company and could adversely affect stock price.
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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