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1 Red-Hot Stocks to Buy As Corporate IT Spends Jump in 2021

When searching for new opportunities that can generate multi-month returns in the stock market, I always look at sectors that are benefiting from trends. Oftentimes, this might be the best place to find big winners.

In my new book on Explosive Stock Strategy, I highlighted practical steps to uncover specific stocks that are due for the possible spike, without the guesswork, from top to bottom. So today, I decided to run a scan of possible explosive stocks to add to my existing picks and guess what I found? A penny stock that’s selling for less than 1 naira with over 40 million units of its share traded in the last 30 days.

What could have attracted such volume to a penny stock that was once illiquid?

Let’s look at the fundamentals of this technology stock:

Q1 Result: Improved performance on operating efficiency and lower interest obligations.

  • Revenue increased from N331.1 million to N422 million, that’s like 27.4% growth.
  • Profit before tax expanded by 912%, from N8.3 million to N84.million
  • Profit after tax grew significantly to N74.8 million from N4.4 m, 1600% growth.
  • Return on Equity (Q on Q) prints at 2% compared to 0.1%.

Q2 Result: Higher revenue and lower finance cost support improved bottom line.

  • Revenue went up from N585.5 million to N873 million, 49.1% growth.
  • Profit before tax also followed the same growth path with 1322%.
  • Profit after tax didn’t fall short expectations too as it blew up by 14,100% – N148.4 million compared to N3.7 million reported in the previous comparable period.
  • This translated to a 4000% increase in Return on Equity to 4.1% from 0.1%
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This is a company that had an unimpressive outing in the previous financial year 2020 as summarized below:

  • Revenue dipped by 17.3% – from N1.98 million to N1.69 in 2019
  • Profit before and after-tax plunged by 87% and 3% respectively in the same period.

It’s obvious that the company’s half-year profit of N148.4 is a few basis points away from the previous 2020 and 2019 full-year profits of N153 million and N159 million respectively which means the 2021 profit will be the highest in 5 years.

Besides the trailing-twelve-month earnings of this company as of this analysis is N298 million, 94% above 2020 profit.

Using a risk-adjusted discount of 25% on the EPS (TTM), this should be fairly valued at a level that’s 40% – 50% above the current market price.

Technical Analysis

In the last 3 and 6 months, this penny stock is up 35% with the market price trading above the 50-day average, there is no doubt that investors’ sentiment is largely positive.

From the chart above, the stock has just pulled back from its 4-year high to an important key level. This region had been tested and re-tested multiple times since 2019 which made it a strong resistance. But it was eventually broken with a 34% rally in August 2021.

Right now, I am looking to buy more in my explosive stock portfolio as I await a re-test of the previous resistance now turned support.

And this stock is…

I think I have made enough information available to you so should be able to uncover the penny stock I have just analyzed. And if you are a member of my private stock trading and investment community, do check the group chat, I have dropped the stock as a new buy.

What do you think?

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[…] also posted the two stocks here (1 Red Hot Stocks to Buy as Corporate IT Spends Jump in 2021) and here (1 Unpopular Penni Stock that Qualifies as an Explosive Stock) but as anonymous […]

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