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: Sunworks Inc. (NASDAQ: SUNW)
Today’s penny stock pick is the solar energy projects operations and development services company, Sunworks Inc. (NASDAQ: SUNW).
Sunworks, Inc., through its subsidiaries, provides photovoltaic based power systems for the agricultural, commercial, industrial, public works, and residential markets in California, Massachusetts, Nevada, Oregon, New Jersey, and Hawaii. The company also designs, finances, integrates, installs, and manages systems ranging in size from 2 kilowatts for residential loads to multi-megawatt systems for larger projects.
In addition, it offers a range of installation services, including design, system engineering, procurement, permitting, construction, grid connection, warranty, system monitoring, and maintenance services to its solar energy customers.
Website: www.sunworksusa.com
Latest 10-k report: https://sec.report/Document/0001493152-21-006917
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for SUNW in the last 3 months, the stock has an average price target of $5.50, which is nearly 76% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The increasing focus on alternative sources of energy as a result of the surge in oil prices, and the Russia-Ukraine conflict.
- Colliers Securities analyst reiterated the ‘Buy’ rating and set a price target of $5.50 for the stock.
Analysts | Source: TipRanks.com
- The company is set to post its quarterly earnings results before the market opens on Friday, March 11th.
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 has been forming a falling wedge pattern for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
SUNW – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line is above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line, indicating possible bullishness.
#5 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#6 Downtrend Broken: The weekly chart shows that the stock has broken out of a short-term downtrend and is currently trading higher. This is a possible bullish indication.
SUNW – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#8 Bullish RSI: The RSI is currently moving higher from oversold levels, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SUNW is above the price of $3.80.
Target Prices: Our first target is $5.50. If it closes above that level, the second target price is $7.00.
Stop Loss: To limit risk, place a stop loss below $2.80. Note that the stop loss is on a closing basis.
Our target potential upside is 45% to 84%.
For a risk of $1.00, our first target reward is $1.70, and the second target reward is $3.20. 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 has a history of net losses. The Company had a consolidated net loss of $15,939, including the $4,000 goodwill impairment expense, for the year ended December 31, 2020, compared to a net loss of $9,186 for the year ended December 31, 2019.
SUNW – Consolidated Statements of Operations
- SUNW has limited operating history, which makes it difficult to accurately evaluate the business and prospects. Even though the company was formed in January 2002, it did not begin selling solar systems until January 2014.
- SUNW’s business is heavily concentrated in certain regions. The vast majority of installations are in California and Nevada. The business model is also dependent on customer demand and weather. This increases the risk of disruptions for the company.
- On March 13, 2020, the company received notice from the Listing Qualifications Department of The NASDAQ Stock Market for lack of compliance with the NASDAQ Listing Rule 5550(a)(2). If continued, the company faces possible delisting.
- The company has a history of name changes. It was formerly known as Solar3D, Inc. and changed its name to Sunworks, Inc. in March 2016. Before that, it was known as MachineTalker, Inc.
- Despite being a loss-making company, the executives are being paid significant compensation.
SUNW – Executive Compensation
- SUNW is facing serious headwinds on possible net metering changes in California, as well as interest rates (which fund their projects) increasing.
- The company faces steep competition from much bigger companies like RUN, NOVA, TSLA, and SPWR. As of now, SUNW does not have a USP that gives them an advantage over their competition.
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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