Editor’s note: This article was first published in September 2013. The 187% three-month gain and the 2012 results it analyses reflect that time, and the situation of Service Point Solutions, a small cap on Spain’s Mercado Continuo, may have changed since. This technical analysis dates from September 2013 and is not investment advice. The two charts it describes could not be recovered.
Service Point (SPS) has gained 187% over the last three months, making it one of the most profitable penny stocks on Spain’s Mercado Continuo. That makes it very eye-catching and tempting to get into, although for anyone who is not already holding it, buying now may not be the best move for the time being in terms of the risk-reward equation.
If we look at a long-term chart, we can see the situation more clearly. In 2009 and 2011 the stock formed a double bottom that led to a technical rebound, which in the end only produced another lower low. It then broke that double-bottom pattern to the downside, and that level will now act as strong resistance at around 0.37-0.39 euros.
If we look at a short-term chart, we can see how the stock is in fact moving on technical speculation: after hitting resistance, it corrected sharply to the 50% retracement and then rebounded higher on the same day.
That is why getting in right now, so close to that resistance, is high-risk, although if the stock breaks through that zone convincingly, we could even see it approach 0.60 euros.
As for the fundamentals, I honestly find this company hard to analyse, because I don’t really understand the kind of business it is in, so I don’t know whether advances in new technologies will help or hurt it.
The results it reported for 2012 (you can see them on the SPS website) show a slight improvement over 2011.
In any case, as we explained yesterday, you shouldn’t buy into penny stocks after strong rises. You need to be in before those rises happen, unless you are very sure that the company is going to be a leader in its market over the long term, which, in principle, I don’t know.
Featured image: Bullsarena, CC BY-SA 4.0, via Wikimedia Commons.
