Penny stocks are known for their volatile moves. Due to a very small market cap and generally lower volume, these stocks can easily make a gigantic jump in a jiffy. One such move was witnessed on Friday when the share price of Ganga Forging Ltd (NS:GANF) skyrocketed to hit a 20% upper circuit at INR 4.6.
Talking about the company first, it is in the business of manufacturing iron and steel forgings, having a market capitalization of a mere INR 40 crores. But surprisingly, this micro-cap company has remained profitable for the last three years, with a net income of INR 1.65 crores in FY23, over a record-high revenue of INR 33.98 crores.
Image Description: Daily chart of Ganga Forgings with volume bars at the bottom
Image Source: Investing.com
On the last working day of this week, the stock hit a 20% UC as it delivered a massive breakout from a symmetrical triangle chart pattern on the daily time frame. After taking a severe beating for a long time, falling from a high of INR 25 in February last year to a low of INR 3 in March this year, it looks like the stock is finally paring some of the previous losses.
This triangle breakout at the very bottom might lead to a confirmed reversal from here and as the stock is trading at around all-time lows, the upside potential is high. Before analyzing the upside, it is important for you to note that micro-cap stocks are the epitome of volatility and are extremely risky. These stocks should not be traded by less experienced, less capitalized or low-risk appetite traders.
Now, as per the dimensions of the triangle pattern the stock holds the potential to rally to INR 5.1 in the immediate future, giving an upside potential of around 10.8%. But that’s not all. If the reversal is confirmed, then much higher targets could be seen, and it won’t be surprising if the stock doubles from here. To manage the risk, traders have to place a stop loss as these stocks can also change direction in the blink of an eye. The ideal place for it is INR 3.4.