SurgePays (NASDAQ: SURG) stock surged more than 70% after it issued solid guidance. That is the one reason to buy. The company expects the Q1 and possibly Q2 results to be soft, aligning with Q4 2024, but after years of efforts, revenue will start to blossom in the back half, and cash flow will turn positive. The forecast is for at least 225% annual growth and could be cautious.
The company provides numerous telecom services and services for telecoms, including AT&T. Integrating SurgePays products into AT&T’s network is completed and will be central to the company’s results in 2025 and in the future.
Here are the reasons why now could be a good time to sell.
#1 - The Stock Price Hit Significant Technical Resistance
As bullish as the 70% surge in stock price may be, the price action hit a solid roof of resistance and may not be able to move any higher. The ceiling is at $2.60 and aligns with a price peak and ceiling set in late 2024. The resulting candle is also significant as it formed a large and significant Doji with high volume that is at risk of becoming an Abandoned Baby.
An Abandoned Baby is a strong signal of market-topping that results from a sharp bullish movement followed by a quick retreat. In this case, the candle following the initial 70% surge aligns with the Abandoned Baby scenario and sets this market up to continue its retreat.
#2 - Short Interest Isn’t in Play…Yet
It is unlikely that short-covering, with short interest at 2.55%, had anything to do with the 70% stock price increase, but it didn’t need to. The average daily volume ahead of the year-end report was around 35,000, well below liquid levels, so the inrush of traffic caused by the guidance had an overly significant impact.
Volume on the release day approached 70 million shares during open trading, an increase of 200,000%, sufficient to absorb any shares available for purchase at any price offered. Volume on the day after the surge was above average but very low relative to 70 million. The takeaway for today is that, with the price action at such lofty levels and showing resistance at a critical level, the short interest is likely rising and will present a headwind for the market in Q2 2025.
#3 - Analysts Don’t Care About This Stock
[content-module:Forecast|NASDAQ: SURG]Regardless of the outlook for revenue, positive cash flow, and long-term financial health, analysts don’t care about this stock.
MarketBeat tracks only one analyst with a rating less than 12 months old, and it came with a price target reduction in late 2024.
The sentiment is Buy, but it doesn’t mean much with no one else in agreement.
Likewise, the Buy rating is from a small and relatively unknown firm, Ascendiant Capital Markets, so it carries little weight.
That lack of broader coverage may keep institutional and retail investors hesitant.
#4 - Institutions Don’t Care About This Stock
Institutional activity is technically bullish, with buying volume outpacing dollar volume, but that does not mean much. Institutions own less than 8% of this stock, and Q1 activity is tepid at best. While they may continue to buy on balance, it will take a significant increase in the pace and a reduction in generally available shares to keep the stock price moving higher.
The likely scenario is that institutions sold on the spike to take profits and may wait for a pullback to buy more shares.
#5 - SurgePays Is Well-Capitalized But Has a Deep Hole to Dig Out Of
SurgePays' balance sheet highlights its solid financial footing and ability to continue operations, but the details are not all wine and roses. Highlights include a significant reduction in liability offset by reduced cash and assets, a massive increase in the deficit, and a rising share count.
The share count increased by 35% in F2024, which was an overhang in the market. SurgePays' share price can increase with these factors and the others described in play, but it will be a struggle, and the risk-to-reward ratio is unfavorable.
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