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%
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.
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.