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: POET Technologies Inc. (NASDAQ: POET)
Today’s penny stock pick is the design and development company, POET Technologies Inc. (NASDAQ: POET).
POET Technologies Inc. designs, develops, manufactures, and sells discrete and integrated opto-electronic solutions in Canada, the United States, Singapore, and China. The company offers integration solutions based on the POET Optical Interposer, a novel platform that allows the seamless integration of electronic and photonic devices into a single multi-chip module using advanced wafer-level semiconductor manufacturing techniques.
It also develops photonic integrated components. The company serves the data center, telecommunications, Internet of things and industrial sensing, automotive LIDAR, optical coherence tomography for medical devices, and virtual reality systems markets.
Website: https://www.poet-technologies.com/
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/0001437424/000149315224011806/form20-f.htm
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for POET in the last 3 months, the stock has an average price target of $3.00, which is nearly 32% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders placed Informative Buys of Shares Worth $323.1K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Rumors of an upcoming merger and acquisition/ partnerships.
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 with a high volume. This 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.
POET – 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.
POET – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 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 POET is above the price of $2.30.
Target Prices: Our first target is $3.80. If it closes above that level, the second target price is $5.00.
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 65% to 117%.
For a risk of $0.90, our first target reward is $1.50, and the second target reward is $2.70. 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. POET’s net loss for the year ended December 31, 2023, was $20,267,365. As of December 31, 2023, the company had an accumulated deficit of $214,291,025.
POET – Consolidated Statements of Operations
- The company depends on a limited number of suppliers of epitaxial wafers and contract manufacturers for our Indium Phosphide laser developments and optical interposer production activities. Some of these suppliers are sole source suppliers. The company’s business and technology development activities could be disrupted if these suppliers stopped, decreased, delayed, or were unable to meet POET’s demand for shipments of their products.
- In connection with the audit of financial statements for the fiscal year ended December 31, 2023, a material weakness in internal control over financial reporting was identified related to Cybersecurity controls. The identified material weakness, if not corrected, could result in a material misstatement to consolidated financial statements that may not be prevented or detected, thereby adversely affecting investor confidence and business operations.
- In order to qualify for listing on Nasdaq, the company consolidated its common shares on a 10-for-1 basis, thereby reducing the total number of common shares that are outstanding on a post-consolidation basis. The reduction in the number of outstanding common shares as a result of the consolidation may adversely affect the liquidity of common shares or decrease the overall value of the Company in the future.
- POET has historically obtained, and expects to continue to obtain, additional financing primarily by way of sales of equity, which may result in significant dilution to existing shareholders.
- Despite being a loss-making company, the executives are being paid significant compensation.
POET – Executive Compensation
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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