Small Cap Stock Sinks Under Recent Trendline Pressure

Danaos is expected to report earnings on Nov. 8

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Danaos Corporation (NYSE:DAC) is one of the largest independent owners of modern, large-size containerships with a fleet of 71 containerships. DAC charters their containerships on long-term contracts at fixed rates to many of the world's largest liner companies. This afternoon, DAC was last seen down 4% at $70.09.

On Oct. 19, Danaos Corporation announced that its senior leadership will release its third quarter 2021 results after the close of the market on Monday, November 8. Wall Street analysts anticipate that the containership company’s EPS will come in at $3.82 in DAC's upcoming earnings report next week.

Danaos stock has increased a massive 655% year-over-year and has tacked on 725% since it dropped to a record low of $8.49 last November. Shares of DAC have grown 224% year-to-date, but have shed 21% from its six-year high of $89.41 reached in early September. Moreover, Danaos Corporation offers a forward dividend of $2.00 and a dividend yield of 2.70%. Now, the security looks trapped between overhead pressure at the formerly supportive 80-day moving average and a floor at the $70 mark.

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From a fundamental perspective, Danaos stock is a high-risk, high-reward play with the risk factors heavily outweighing the reward potential at this time. DAC’s valuation remains very attractive at a price-earnings ratio 2.01. However, the business has undoubtedly been boosted temporarily by current market conditions favoring the shipping industry. 

Shorts have been piling onto the equity as well. During the past two reporting periods, short interest has grown 21.3%, and now accounts for nearly 12% of the stock's total available float. At the stock's average pace of trading, it would take shorts nearly four days to buy back their bearish bets.

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