A lot of the times during stock picking, there usually are quite a few moving parts when doing a write-up on a new stock. Typically, we have a dash of fundamental trends, headline analysis and then we dive in to the technical side and risk parameters. With our newest pick, we feel that it was so clean cut from a risk:reward perspective that we decided to make our write-up relatively straight forward. While this stock's risk:reward ratio is similar to other picks we’ve made recently, you’ll notice that the upside and downside are a bit more tame on a percentage basis than they usually are. This is because of the simple nature of the technical setup. Without further ado, we’d like to introduce our newest pick and dig in; Ardmore Shipping Corporation (NYSE:ASC).
Background:
Ardmore Shipping Corp owns and operates a fleet of mid-size product and chemical tankers, which provide seaborne transportation of petroleum products and chemicals across the globe. The company is focused on fuel efficiency and cost leadership, and it provides its shipping services to customers through voyage charters, commercial pools, and time charters. Its main customers are oil majors, national oil companies, oil and chemical traders, and chemical companies.
ASC Trading Strategy:
Even though the stock fell from its session high of $4.20 to close at $4.06/share (+3.05%) on Friday, we think that the intraday pop is cause to get excited. Traders appear to be increasingly bullish on this stock, so we think that the momentum seen Friday and leading up to October will be enough to push this stock to our price target. With this being taken into account, we like the entry at Monday’s open.
For support, there are two relatively close levels that we view as essential for this small cap. Up first is the 100-day SMA currently at $3.74. Following this is the October low of $3.63 that served as sharp support earlier this month. Should the price dip below both of these levels during an intermediate selloff, we feel it’s best to cut ties with the position in order to avoid ruin. With that said, we have set our stop loss at $3.62/share.
As for the resistance side of the equation, just like the support, there are two key points. The only difference on this side is that the levels are much further away than on the support side, which is good for our position. Up first we have the June peak of $4.57. Following this up is the May peak of $5.13. Both of these monthly highs served as significant resistance earlier this year, however we think that the recent momentum will carry the price just above these price ceilings, which is why we have set our price target at $5.15/share.
With these risk parameters in place and using Friday’s close of $4.06 as the proxy entry price, this play is shaping up to have +26.85% upside while risking -10.84%. We anticipate this move occurring within the next five to seven months.
