This Penny Stock Looks Poised for a Breakout

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: Paysafe Ltd (NYSE: PSFE)

Today’s penny stock pick is the United Kingdom-based specialized payments platform, Paysafe Ltd (NYSE: PSFE).

Paysafe Ltd provides digital commerce solutions to online businesses, small and medium-sized business merchants, and consumers through its Paysafe Network worldwide. The company operates in two segments, US Acquiring and Digital Commerce.

It provides PCI-compliant payment acceptance and transaction processing solutions for merchants and integrated service providers, including merchant acquiring, transaction processing, online solutions, fraud and risk management tools, data and analytics, and point of sale systems and merchant financing solutions under the Paysafe and Petroleum Card Services brands.

The company also offers digital wallet solutions under the Skrill and NETELLER brands; and pay-by-bank solution under the Rapid Transfer brand. In addition, it provides eCash solutions, such as Paysafecash, a bill payment eCash solution that allows users to shop online and then pay offline in cash to finalize the transaction; paysafecard, a prepaid eCash solution; and paysafecard prepaid Mastercard that can be linked to a digital paysafecard account and used to make purchases.

Website:  https://www.paysafe.com

Latest 10-k report:  https://sec.report/Document/0000950170-22-004762/

Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for PSFE in the last 3 months, the stock has an average price target of $3.00, which is nearly 86% upside from current levels.

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • Paysafe announced its entry into the new Kansas online sports-betting market. Kansas is the newest regulated U.S. iGaming market.
  • The company recently inked a new partnership with Spreedly, a leading global payments orchestration platform provider, to offer Paysafe’s payment gateway to Spreedly’s international merchant base.

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.

PSFE – 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 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 is a possible bullish indication.

PSFE – Weekly Chart

#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 PSFE is above the price of $1.85.

Target Prices: Our first target is $2.90. If it closes above that level, the second target price is $4.00.

Stop Loss: To limit risk, place a stop loss at $1.30. Note that the stop loss is on a closing basis.

Our target potential upside is 57% to 116%.

For a risk of $0.55, our first target reward is $1.05, and the second target reward is $2.15. This is a nearly 1:2 and 1:4 risk-reward trade.

In other words, this trade offers 2x to 4x more potential upside than downside.

Potential Risks / Red Flags:

  1. The company has a history of net losses. PSFE reported a net loss of $110,328 for the year ended December 31, 2021, and a net loss of $126,714 for the year ended December 31, 2020.

    PSFE – Consolidated Statements of Comprehensive Loss

  2. Despite being a loss-making company, the executives are being paid significant compensation. The aggregate compensation paid to non-executive directors in 2021 was $3,035,237. The Cash compensation for the company’s senior management team in 2021 consisted of an aggregate base salary of $4,966,425.
  3. Hedge Funds Decreased Holdings by 186.7K Shares Last Quarter.

    Hedge Funds | Source: TipRanks.com

  4. On December 10, 2021, a class action complaint, Lisa Wiley v Paysafe Limited f/ka/Foley Trasimene Acquisition Corp. II, Richard N Massey, Bryan D. Coy, Philip McHugh, and Ismail (Izzy) Dawood, was filed in the United States District Court for the Southern District of New York, naming among others the Company, its Chief Executive Officer and Chief Financial Officer, as defendants. The complaint alleges that the Company and individual defendants made false and misleading statements to the market regarding the Company’s financial outlook in light of gambling regulations in key European markets, performance challenges in the company’s Digital Commerce segment, and the modified scope and timing of new eCommerce customer agreements.

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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Source: Trades of the Day