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: Shift Technologies Inc. (NASDAQ: SFT)
Today’s penny stock pick is the American company that maintains an online marketplace for buying and selling used cars, Shift Technologies Inc. (NASDAQ: SFT).
Shift Technologies Inc., together with its subsidiaries, provides an e-commerce platform for buying and selling used cars. The company operates in two segments, Retail and Wholesale. It engages in the retail sale of used vehicles through its platform that enables mobile digital transactions, such as at-home car searching, scheduling an on-demand test drive, and purchasing at home or at the preferred site of a test drive, as well as provides financing and services.
The company also provides value-added products, such as vehicle service contracts, guaranteed asset protection waiver coverage, wheel and tire coverage, prepaid maintenance plans, and appearance protection plans. In addition, it is involved in the sale of used vehicles through wholesale auctions or directly to a wholesaler.
Website: https://shift.com/
Latest 10-k report: https://sec.report/Document/0001762322-22-000017/, https://sec.report/Document/0001213900-22-021236 (amended)
Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for SFT in the last 3 months, the stock has an average price target of $5.00, which is nearly 468% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company recently announced that it has entered a definitive agreement to acquire certain assets of Fair Technologies.
- Increasing short interest in SFT, resulting in a potential “short squeeze”.
- In Q1, Shift managed to beat revenue and adj. GPU guidance, which came in at $220M (up 107% y/y) and $1,681, respectively.
- Rumors of strategic takeover.
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.
SFT – 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 Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#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 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.
SFT – 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 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 SFT is above the price of $0.95.
Target Prices: Our first target is $1.90. If it closes above that level, the second target price is $2.70.
Stop Loss: To limit risk, place a stop loss at $0.40. Note that the stop loss is on a closing basis.
Our target potential upside is 100% to 184%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $1.75. 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. SFT incurred net losses of $166.3 million and $59.1 million for the years ended December 31, 2021, and December 31, 2020, respectively.
SFT – Consolidated Statements of Operations and Comprehensive Loss
- Hedge Funds Decreased Holdings by 1.0M Shares Last Quarter.
Hegde Funds | Source: TipRanks.com
- The company participates in a highly competitive industry, and pressure from existing and new companies may adversely affect its business and results of operations. The used-car market also remains highly volatile due to a stagflation environment and labor shortages.
- Despite being a loss-making company, the executives are being paid multi-millions in compensation.
SFT – Executive Compensation
- On May 7, 2021, SFT was named in a lawsuit filed in the U.S. District Court for the Southern District of New York (Stifel, Nicolaus & Company, Inc. v. Shift Technologies, Inc. 21-cv-04135) by a former financial advisor, Stifel, Nicolaus & Company, Inc., claiming that the company is required to pay the former financial advisor certain compensation as a result of the Merger.
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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