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: B. Riley Financial, Inc. (NASDAQ: RILY)
Today’s penny stock pick is the American financial services company, B. Riley Financial, Inc. (NASDAQ: RILY).
Riley Financial, Inc. provides financial services to corporate, institutional, and high-net-worth clients in North America, Australia, the Asia Pacific, and Europe. The company operates through six segments: Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer.
The Capital Markets segment offers investment banking, equity research, institutional sales and trading, securities lending, fund and asset management, direct lending, venture capital, proprietary trading, and investment services; merger and acquisition, restructuring advisory, and recapitalization services; public and private equity offerings; and debt financing solutions.
This segment also trades in equity securities. The Wealth Management segment provides wealth management and tax services. The Financial Consulting segment offers bankruptcy restructuring and turnaround management, forensic accounting and litigation support, valuation and appraisal, and real estate services. The Auction and Liquidation Segment provides auction and liquidation services.
The Communications segment offers dial-up, mobile broadband, and digital subscriber line services under the NetZero and Juno brands; cloud communication services; VoIP cloud-based technology and communication devices and subscription services through magicJack; and mobile phone voice, text, and data services and devices through Marconi Wireless. The Consumer segment sells laptops and computer accessories.
Website: https://brileyfin.com/
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/0001464790/000162828024017512/rily-20231231.htm
Analyst Consensus: Not covered by Wall Street analysts.
Potential Catalysts / Reasons for the Hype:
- The company announced that it will release preliminary Q4 financial results after market close on Monday, March 3.
- RILY also announced the filing of its quarterly report for the three-month period ended September 30, 2024, or Q3. With the filing, B. Riley expects to regain compliance with Nasdaq.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: 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 currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
RILY – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#4 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.
RILY – Weekly Chart
#5 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 RILY is above the price of $4.80.
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 $3.50. Note that the stop loss is on a closing basis.
Our target potential upside is 46% to 88%.
For a risk of $1.30, our first target reward is $2.20, and the second target reward is $4.20. 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.
RILY – Consolidated Statements of Comprehensive Loss
- The company has ongoing legal proceedings.
- On January 24, 2024, a putative securities class action complaint was filed by Mike Coan in the U.S. Federal District Court, Central District of California, against the Company alleging that (a) the Company failed to disclose to investors that (i) Brian Kahn, had been implicated in a conspiracy to defraud third party investors, and (ii) the Company financed Brian Kahn and others in connection with a going private transaction involving FRG, and (b) as a result of the foregoing, the Company engaged in securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
- On September 21, 2023, RILY received a demand alleging that certain payments in the aggregate amount of approximately $32.2 million made by Sorrento Therapeutics, Inc., a Chapter 11 debtor in U.S. Bankruptcy Court, Southern District of Texas, to B. Riley Commercial Capital, LLC, pursuant to that certain Bridge Loan Agreement dated September 30, 2022, between Sorrento and BRCC, are avoidable as preferential transfers.
- Hedge Funds Decreased Holdings by 6.1M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has significant debt. As of December 31, 2023, RILY had approximately $2,356.4 million of outstanding indebtedness.
- On August 21, 2024, the company received a delinquency notification from Nasdaq due to the delayed filing of its Quarterly Report on Form 10-Q for the period ended June 30, 2024. On November 20, 2024, RILY received an additional delinquency notification for not timely filing the Quarterly Reports for the periods ended June 30 and September 30, 2024.
- RILY was entangled in securities fraud legal proceedings involving the Franchise Group.
- Despite being a loss-making company, the executives are being paid significant compensation.
RILY – 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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