We recently started a series called “Penny Stock of the Day”. These ideas are geared for 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: Enthusiast Gaming Holdings Inc. (NASDAQ: EGLX)
Today’s penny stock pick is the media and content platform for video games and esports fans, Enthusiast Gaming Holdings Inc. (NASDAQ: EGLX).
Enthusiast Gaming Holdings Inc. engages in the media, content, entertainment, and esports businesses in the United States, Canada, and internationally. The company operates an online network of approximately 100 gaming related websites; owns and operates Enthusiast Gaming Live Expo, a video-gaming expo; provides management and support services to players involved in professional gaming.
The company owns and manages esports teams, which cover games comprising Call of Duty, Madden, Fortnite, Overwatch, Apex, and Valorant; and produces and programs approximately 30 weekly shows across AVOD and OTT channels, and represents approximately 500 gaming influencers across YouTube and Twitch. It also operates Luminosity Gaming, an eSports franchise; and hosts other gaming events.
Website: https://www.enthusiastgaming.com/
Latest 10-k report: https://www.enthusiastgaming.com/wp-content/uploads/2021/04/FS-Q4-2020.pdf
Analyst Consensus: As per TipRanks Analytics, based on 4 wall street analysts offering 12-month price targets for EGLX in the last 3 months, the stock has an average price target of $8.42, which is nearly 94% upside from current levels.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company’s launch of project GG, a cross-platform, gaming-centric social network, uniting gaming and esports fans on desktop and mobile.
- EGLX announced record unique visitor traffic during October, and this is said to validate the platform’s popularity with a Gen Z and millennial audience.
- A positive insider sentiment, with Corporate Insiders buying shares worth $172.3K in the last 3 months.
EGLX – 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 was forming a falling wedge pattern for the past several weeks. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock is currently moving higher after breaking out of the falling wedge pattern with high volume, indicating possible bullishness. The stock is also trading above its 50-day SMA, indicating that the bulls are gaining control.
EGLX – 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 has moved higher from below the +DI and -DI lines.
#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 Stoch: The %K line of the stochastic is above the %D line. This indicates a possible bullish setup.
#5 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The stock had taken support at the 23.6% Fibonacci support level of the upmove before moving higher, as seen in the weekly chart. This indicates bullishness.
EGLX – Weekly Chart
#6 Bullish RSI: The RSI had moved higher after reaching oversold levels and is now above 50. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for EGLX is above the price of around $4.60.
Target Prices: Our target prices are $6.00 and $7.00.
Stop Loss: To limit risk, place a stop loss at $3.75. Note that the stop loss is on a closing basis.
Our target potential upside is 30% to 52%.
For a risk of $0.85, our first target reward is $1.40, and the second target reward is $2.40. 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.
EGLX – Consolidated Statements of Loss and Comprehensive Loss
- EGLX was formerly known as J55 Capital Corp.
- Whenever the undisclosed contracts that streamers like xQc and Pokimane have with EGLX end, they could switch to a different agency.
- The company had significant share dilution. EGLX is also expected to dilute more shares to fundraise some capital for business operations.
- The company CEO Adrian Montgomer’s name had recently come up in a scandal.
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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