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: Kaival Brands Innovations Group Inc. (NASDAQ: KAVL)
Today’s penny stock pick is the distributor of vaping products, Kaival Brands Innovations Group Inc. (NASDAQ: KAVL).
Kaival Brands Innovations Group Inc. distributes electronic nicotine delivery systems (ENDS Products) and related components in the Unites States. The company offers Bidi Stick, a disposable and tamper-resistant ENDS Product in various flavor options; and Bidi Pouch, a tobacco-free nicotine formulation, which contains natural fibers and a chew-base filler in different flavors. It sells its products to non-retail customers through the website bidivapor.com.
Website: https://kaivalbrands.com
Latest 10-k report: https://sec.report/Document/0001731122-22-000257
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for KAVL in the last 3 months, the stock has an average price target of $3.00, which is nearly 73% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reached an agreement with Philip Morris Products S.A. for the development and distribution of electronic nicotine delivery system products in markets outside of the U.S., subject to market (or regulatory) assessment. The deal gives Philip Morris Products license of certain intellectual property rights relating to KAVL’s Bidi Vapor’s premium ENDS device and newer devices.
- US circuit’s court judicial stay of the marketing denial order (MDO) previously issued by the US Food and Drug Administration (FDA).
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.
KAVL – 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 MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls have currently gained control.
#4 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.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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.
KAVL – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 KAVL is above the price of $1.90.
Target Prices: Our first target is $3.10. If it closes above that level, the second target price is $4.50.
Stop Loss: To limit risk, place a stop loss at $1.10. Note that the stop loss is on a closing basis.
Our target potential upside is 63% to 137%.
For a risk of $0.80, our first target reward is $1.20, and the second target reward is $2.60. 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. KAVL’s net loss for the fiscal year 2021 was approximately $9.0 million.
KAVL – Consolidated Statements of Operations
- The company was formerly known as Quick Start Holdings, Inc. and changed its name to Kaival Brands Innovations Group, Inc. in July 2019.
- Despite being a loss-making company, the executives are being paid significant compensation.
KAVL – Executive Compensation
- On January 26, 2022, The Nasdaq Stock Market LLC notified the Company that it is not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2), because the closing bid price of the Company’s common stock was below $1.00 per share for 30 consecutive business days.
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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