We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely high risk appetite.
Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.
Penny Stock of the Day: WiMi Hologram Cloud Inc. (NASDAQ: WIMI)
Today’s penny stock pick is the WiMi Hologram Cloud Inc. (NASDAQ: WIMI).
WiMi Hologram Cloud Inc. provides augmented reality (AR) based holographic services and products in China. It operates in three segments: AR Advertising Services, AR Entertainment, and Semiconductor Related Products and Services. The company primarily offers holographic AR advertising services and holographic AR entertainment products.
Website: www.hologram.io
Latest 10-k report: https://sec.report/Document/0001213900-21-023396/
Analyst Consensus: As per TipRanks analytics, no analyst has given stock ratings to WiMi Hologram Cloud in the past 3 months. However, nine months ago, Benchmark Co. analyst had given a ‘Buy’ rating and $8.00 price target for WIMI, which is a 90.02% upside from current levels.
Recent Analyst Ratings | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported strong earnings results. Revenue more than tripled year over year to RMB516 million ($79.9 million) for the first half of 2021. Net profits increased 40% year over year to RMB32 million ($5 million), even while the company significantly ramped up spending on research and development.
- WiMi is benefiting from booming demand in the augmented reality market in China.
- The company’s opportunity to capitalize on the growing demand for metaverse applications.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern with high volume, indicating possible bullishness.
WIMI – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line has currently moving higher from below the +DI and -DI lines.
#3 Bullish RSI: The RSI is currently above 50 and moving higher, indicating possible bullishness.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
#5 Above Support Area: The weekly chart shows that the stock is trading above a strong support area, which is marked as a purple color dotted line. This is a possible bullish indication.
WIMI – Weekly Chart
#6 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line and is also moving higher from oversold levels. All these are positive indications.
#7 Oversold RSI: The RSI is currently moving higher after reaching oversold levels, indicating possible bullishness.
#8 MACD above Signal Line: The weekly chart shows that the MACD line (blue color) has crossed above the signal line (orange color). This is a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for WIMI is if it closes above the near-term resistance level. This translates to a price of above $4.90.
Target Prices: Our target prices are $6.50 and $8.00.
Stop Loss: To limit risk, place a stop loss at $3.90. Note that the stop loss is on a closing basis.
Our target potential upside is 33% to 63%.
For a risk of $1.00, our first target reward is $1.60, and the second target reward is $3.10. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 3x more potential upside than downside.
Potential Risks / Red Flags:
- The company had reported a net loss from continuing operations of RMB145.0 million (US$21.8 million) in 2020.
WIMI – Annual Report – Consolidated Statement of Operations
- The company is registered in the Cayman Islands, which means there is no corporate or income tax on money earned outside of its territory. The Caymans is known for making it easy for business owners to shield their assets.
- The company is rumored to have fired its US board member. The company’s location is also rumored to be in a mall. The company is said to have given stock options to their employees and posted a loss because of it.
- WIMI has had many offerings too soon, even though the company has not produced anything yet. The company completed its initial public offering in April 2020 and received net proceeds of approximately US$ 24.2 million (RMB 171.5 million). On July 27, 2020, the company completed a follow-on public offering of 7,560,000 ADSs at the price of US$8.18 per ADS, resulting in net proceeds to us of approximately US$57.3 million (RMB 401.3 million). On March 23, 2021, the company completed its registered direct offering of 11,173,335 units, with each unit consisting of one ADS and four-tenths of a warrant to purchase one ADS at an exercise price of US$ 8.60 per ADS, at the public offering price of US$7.50 per unit, resulting in net proceeds to us of approximately US$77.8 million (RMB 507.9 million.
- There is always an added risk when owning a Chinese company, not only because they’re subject to less stringent audits than their American counterparts, but because it could be it could very well turn out to be another Luckin Coffee Inc. Starbuck’s Chinese rival, Luckin had disclosed that several employees including its COO had fabricated transactions for much of 2019, amounting to an estimated RMB 2.2 billion in falsified sales, and had to finally make a $187.5 million settlement deal with investors.
- The market for hologram technology is still a long way away and no one can be sure whether or not it will catch on.
As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!
Happy Trading!
— Trades of the Day Research Team
READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.
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