The Fundamental Case for PNSN is Still Positive
PNSN still is drastically undervalued from a long-term perspective. PNSN derives significant revenues from providing clearing services to brokers.
History tells us that over a long period of time, volume of transactions increases. This long-term trend is beneficial for PNSN.
There is an increasing trend towards independent RIAs (financial advisors). This trend works towards the advantage of PNSN.
PNSN is also a prime acquisition target. A logical buyer of PNSN is another financial company.
Balance Sheet Risk
PNSN has been hit hard due to company’s missteps with its balance sheet.
The company is tightly regulated and so far there is no news from regulators that concerns its balance sheet. However, regulators are known to be mum about such matters. If there is non-public information that indicates serious deterioration in balance sheet, then there is risk of the stock going to zero.
The Trading Pattern
It is common for a large number of stops to exist below a round number such as $1.00. These days Wall Street uses ‘Hunt and Destroy” algorithms that artificially take out the stops to drive the price lower. We expected the possibility of such destruction of stops and that is why we recommended adding a 10% tranche in the zone of $0.80-0.93.
If the stock breaks $0.75, it will be worrisome. Since there is no public information regarding further deterioration in the balance sheet, it is important to keep an eye on potentially illegal trading. The law is clear that non-public information can not be made selectively available. However, history tells us that it pays attention to trading patterns as they may indicate illegal insider trading.
Smart Money Actions
Yesterday was one of the rare days when Smart Money buying was not observed in PNSN on a dip. The same pattern continues today.
This is particularly worrisome.
What to do now?
Those who have been in this and other PNSN trades from the beginning and those who entered later are differently situated.
Those in from the beginning will be profitable even if the stock goes to zero because of the profits previously taken. Unfortunately this is not the case for those who recently entered.
We recommend a stop zone of $0.68 – 0.72.
Aggressive investors may consider stops only on part of the position and may think in terms of risk reward.
The downside risk is $0.80 if the stock goes to zero, upside gain is $4.20. This is why we highlighted the risk in bold red color in the last post as follows:
Caution: This is a speculative position with potentially high rewards but also high risk of loss.
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