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: Rigetti Computing, Inc. (NASDAQ: RGTI)
Today’s penny stock pick is the integrated systems company, Rigetti Computing, Inc. (NASDAQ: RGTI).
Rigetti Computing, Inc. builds quantum computers and superconducting quantum processors. The company’s quantum computing as a Service platform can be integrated into any public, private, or hybrid cloud. The company offers product types of platforms, research, and software tools, which are used in application areas of benchmarking, chemical simulation, education/entertainment, machine learning, and optimization.
The company helped pioneer the architecture that bridges classical computing and quantum computing. Further, the company’s cloud approach allows anybody to access its computers remotely. It has operations in the United States and the United Kingdom.
Website: https://www.rigetti.com
Latest 10-k report: https://investors.rigetti.com/static-files/628ad18d-6a09-4211-88c6-69ed1d81ed9a
Analyst Consensus: Not Covered By Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- The company announced a five-year contract with the Air Force Research Lab to provide Quantum Foundry Services. Additionally, RGTI secured a DARPA IMPAQT contract aimed at developing quantum algorithms. Both of these measures underscore its growing prominence in the defense industry.
- Rigetti Computing recently announced the availability of its 84-qubit Ankaa-2 quantum computing system, which will be accessible through Rigetti’s cloud service.
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.
RGTI – 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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.
RGTI – 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 RGTI is above the price of $1.90.
Target Prices: Our first target is $2.70. If it closes above that level, the second target price is $3.20.
Stop Loss: To limit risk, place a stop loss at $1.50. Note that the stop loss is on a closing basis.
Our target potential upside is 42% to 68%.
For a risk of $0.40, our first target reward is $0.80, and the second target reward is $1.30. 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. RGTI incurred net losses of $71.5 million and $41.7 million for the year ended December 31, 2022, and the twelve months ended December 31, 2021, respectively. As of December 31, 2022, the company had a total outstanding indebtedness of approximately $30.7 million consisting of outstanding borrowings under the Loan Agreement.
RGTI – Consolidated Statements of Operations
- The company’s business and future expansion plans are capital-intensive and will require a significant amount of cash for expenditures. If the company is unable to raise additional funding when needed, it may be required to delay, limit, or substantially reduce its quantum computing development efforts.
- The company has customer concentration risk. RGTI depends on a limited number of customers for a significant percentage of its revenue and the loss or temporary loss of a major customer for any reason could harm its financial condition. For instance, the company’s three largest customers collectively accounted for 66% of RGTI’s revenue for the fiscal year ended December 31, 2022.
- Despite being a loss-making company, the executives are being paid significant compensation.
RGTI – Executive Compensation
- Hedge Funds Decreased Holdings by 10.8K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
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