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: Aterian Inc. (NASDAQ: ATER)
Today’s penny stock pick is the technology-enabled consumer products company, Aterian Inc. (NASDAQ: ATER).
Aterian Inc. provides Artificial Intelligence Marketplace e-Commerce Engine, a software technology platform, which uses machine learning, natural language processing, and data analytics to design, develop, market, and sell products. Its platform offers home and kitchen appliances; kitchenware; heating, cooling, and health and beauty products; and air quality appliances, such as dehumidifiers, humidifiers, and air conditioners under the hOmeLabs, Vremi, Squatty Potty, Xtava, RIF6, Aussie Health, Holonix, Truweo, Mueller, Pursteam, Pohl and Schmitt, Healing Solutions, Photo Paper Direct, and Spiralizer brands.
The company also sells essential oils. It primarily serves individual online consumers through Amazon and other e-commerce platforms, as well as through its owned and operated websites and other marketplaces.
Website: https://www.aterian.io/
Latest 10-k report: https://sec.report/Document/0001193125-22-086725 (amended), https://sec.report/Document/0001564590-22-010668/ (original)
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for ATER in the last 3 months, the stock has an average price target of $5.50, which is nearly 61% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors about a potential short squeeze. According to Fintel, Aterian’s short interest as a percentage of its float sits at around 32%. Additionally, off-exchange short volume sits at more than 63%, a very high level for any given stock.
- The company appointed Cynthia Williams to Aterian’s board of directors.
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 with high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
ATER – 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 a pink color dotted line. This is a possible bullish indication.
ATER – Weekly Chart
#7 Bullish RSI: The RSI is currently moving higher from oversold levels, indicating possible bullishness.
#8 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 ATER is above the price of $3.90.
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 at $3.00. Note that the stop loss is on a closing basis.
Our target potential upside is 41% to 79%.
For a risk of $0.90, 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 has a history of net losses.
ATER – Consolidated Statements of Operations
- The company has a short operating history in a rapidly evolving industry and increasingly competitive environment. It was formerly known as Mohawk Group Holdings, Inc. and changed its name to Aterian, Inc. in April 2021.
- Corporate Insiders Sold Shares Worth $445.2K in the Last 3 Months.
Insiders | Source: TipRanks.com
- The company has ongoing legal proceedings.
- On May 13, 2021, a securities class action complaint was filed in the U.S. District Court for the Southern District of New York by Andrew Tate, naming the Company, Yaniv Sarig, and Fabrice Hamaide as defendants.
- On September 20, 2021, Sabby Volatility Warrant Master Fund Ltd. sued the Company in the Supreme Court of the State of New York, New York County, alleging that the Company breached the Securities Purchase Agreement, dated June 10, 2021, pursuant to which Sabby purchased 400,000 shares of the Company’s common stock, for an aggregate price of approximately $6 million.
- Despite being a consistently loss-making company, the executives are being paid millions as compensation.
ATER – Executive Compensation
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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