We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: Kandi Technologies Group Inc. (NASDAQ: KNDI)
Today’s penny stock pick is the Chinese battery and electric vehicle manufacturer, Kandi Technologies Group Inc. (NASDAQ: KNDI).
Kandi Technologies Group Inc. designs, develops, manufactures, and commercializes electric vehicle (EV) products and parts, and off-road vehicles in the People’s Republic of China and internationally. It offers off-road vehicles, including all-terrain vehicles, utility vehicles, go-karts, electric scooters, and electric self-balancing scooters, as well as related parts; and EV parts comprising battery packs, body parts, EV controllers, air conditioning units, and other auto parts.
Website: www.kandivehicle.com
Latest 10-k report: https://sec.report/Document/0001213900-22-012325
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for KNDI in the last 3 months, the stock has an average price target of $5.00, which is nearly 43% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company has been focusing on EV bikes/scooters and NEVs in lieu of EV cars, and is slowly growing to be a leader in the sector.
- The overall increase in confidence in Chinese stocks due to China’s State Council promising to ease regulatory crackdowns on technology companies along with boosting the broader economy.
- Hedge Funds Increased Holdings by 59.8K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
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.
KNDI – 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, and has also moved higher from oversold levels, 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 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as an orange color dotted line. This is a possible bullish indication.
KNDI – Weekly Chart
#7 Bullish RSI: The RSI is moving higher from oversold levels and is currently nearing 50, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart as well, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates 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 KNDI is above the price of $3.90.
Target Prices: Our first target is $4.80. If it closes above that level, the second target price is $6.20.
Stop Loss: To limit risk, place a stop loss at $3.40. Note that the stop loss is on a closing basis.
Our target potential upside is 23% to 59%.
For a risk of $0.50, our first target reward is $0.90, and the second target reward is $2.30. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. KNDI had reported net loss of $10,394,164 for the year ended December 31, 2020.
KNDI – Net Loss
- The company has ongoing legal proceedings.
- Beginning in March 2017, putative shareholder class actions were filed against Kandi and certain of its current and former directors and officers in the United States District Court for the Central District of California and the United States District Court for the Southern District of New York. The complaints generally alleged violations of the federal securities laws based on Kandi’s disclosure in March 2017 that its financial statements for the years 2014, 2015 and the first three quarters of 2016 would need to be restated, and sought damages on behalf of putative classes of shareholders who purchased or acquired Kandi’s securities prior to March 13, 2017.
- In December 2020, a putative securities class action was filed against Kandi and certain of its current officers in the United States District Court for the Eastern District of New York. The complaint generally alleges violations of the federal securities laws based on claims made in a report issued by Hindenburg Research in November 2020, and seeks damages on behalf of a putative class of shareholders who purchased or acquired Kandi’s securities prior to March 15, 2019.
- Despite being a company with a history of losses, the executives are being paid significant compensation.
KNDI – Executive Compensation
- There are inherent risks associated with investing in a company doing business in China. It may be difficult for U.S. regulators, such as the Department of Justice, the SEC, and other authorities, to conduct investigation or collect evidence within China; investors may experience difficulties in effecting service of legal process, enforcing judgements or bringing original actions based on United States or foreign laws against the company or management; and there are substantial uncertainties and restrictions on the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business.
- The company has been accused of fraud by Hindenburg. Highlights among Hindenburg’s allegations are that over 60% of Kandi’s sales are to related parties and that its major client even shares a phone number with one of its subsidiaries; customer inventory is sitting in Kandi’s own warehouse facilities; and that its auditor has a three-year ban from auditing Chinese companies.
- Kandi doesn’t seem to possess any meaningful tech or a competitive edge compared to its peers.
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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