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: Douglas Elliman Inc. (NYSE: DOUG)
Today’s penny stock pick is one of the largest residential brokerage companies in the New York metropolitan area, Douglas Elliman Inc. (NYSE: DOUG).
Douglas Elliman Inc. engages in the real estate services and property technology investment business in the United States. It operates in two segments, Real Estate Brokerage, and Corporate and Other. The company provides residential real estate brokerage services. It has approximately 125 offices with approximately 6,600 real estate agents in the New York metropolitan area, as well as in Florida, California, Connecticut, Massachusetts, Colorado, New Jersey, and Texas.
Website: https://www.elliman.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001878897/0766be49-54fc-4c4d-a545-a7a175776973.pdf
Analyst Consensus: As per TipRanks Analytics, DOUG has an average analyst rating of “hold”.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders placed Informative Buys of Shares Worth $778.2K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Rumors of upcoming rate cuts.
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 and is moving higher. This is a possible bullish sign.
DOUG – 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 Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible 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.
DOUG – 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 DOUG is above the price of $2.30.
Target Prices: Our first target is $3.30. If it closes above that level, the second target price is $4.30.
Stop Loss: To limit risk, place a stop loss at $1.70. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 87%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $2.00. 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.
DOUG – Consolidated Statements of Operations
- The company has customer concentration risk. DOUG’s business significantly depends on sales transactions for residential property in the New York metropolitan area, and derived approximately 50% of revenues in 2023, 52% of revenues in 2022 and 55% of revenues in 2021 from the New York metropolitan area.
- Hedge Funds Decreased Holdings by 1.3M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has been subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings. These include Gibson Case, Batton Case, March Case, Umpa Case, Friedman Case, Whaley Case, Boykin Case, and Multidistrict Litigation.
- Despite being a loss-making company, the executives are being paid significant compensation.
DOUG – 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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Source: Trades of the Day