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: Party City Holdco Inc. (NYSE: PRTY)
Today’s penny stock pick is the party goods retailer, Party City Holdco Inc. (NYSE: PRTY).
Party City Holdco Inc. designs, manufactures, sources, and distributes party goods worldwide. The company operates through two segments, Retail and Wholesale. It offers paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts, and stationery.
As of February 28, 2022, the company operated approximately 830 specialty retail party supply stores, including franchise stores throughout North America under the Party City and Halloween City names, as well as e-commerce websites principally through the domain name PartyCity.com.
It offers its products through company-owned stores, independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers, and dollar stores.
Website: www.partycity.com
Latest 10-k report: www.partycity.com
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for PRTY in the last 3 months, the stock has an average price target of $5.00, which is nearly 42% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders Bought Shares Worth $6.5M in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Increased Holdings by 500.0K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company will release its earnings data before the market opens on Monday, May 9th.
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.
PRTY – 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 Bullish RSI: The RSI is near 50 and moving higher, indicating possible bullishness.
#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 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. The weekly chart shows that the stock had taken support at the 23.6% Fibonacci support level of the upmove before starting to move higher. This is a possible bullish sign.
PRTY – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#7 MACD above Signal Line: In the weekly chart, 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 PRTY is above the price of $4.00.
Target Prices: Our first target is $5.30. If it closes above that level, the second target price is $6.50.
Stop Loss: To limit risk, place a stop loss at $3.20. Note that the stop loss is on a closing basis.
Our target potential upside is 33% to 63%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.50. 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.
PRTY – Consolidated Statements of Operations and Comprehensive Loss
- Despite being a loss-making company, the executives are being paid millions as compensation.
PRTY – Executive Compensation
- The company has substantial level of indebtedness (through its subsidiaries), and such level of debt may adversely impact the company’s operations and financial results.
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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