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: Hut 8 Mining Corp. (NASDAQ: HUT)
Today’s penny stock pick is the cryptocurrency mining company, Hut 8 Mining Corp. (NASDAQ: HUT).
Hut 8 Mining Corp. engages in industrial scale bitcoin mining operations. It also owns and operates 38 BlockBoxes in Drumheller, Alberta; and 51 BlockBoxes in Medicine Hat, Alberta. HUT commands a sizable minority stake in the overall Bitcoin network.
Instead of selling the Bitcoins it mines on the market, Hut 8 Mining maximizes returns for shareholders by lending them out and farming yields, leading to compounded returns. The company also uses a mix of wind, solar, and natural gas sources for its electricity with decade-long leases, ensuring the sustainability of its operations.
Website: https://hut8mining.com
Latest 10-k report: https://sec.report/Document/0001140361-22-009959/
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for HUT in the last 3 months, the stock has an average price target of $5.51, which is nearly 238% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The recent sharp increase in cryptocurrency prices led by the market cap leader, Bitcoin. Since miners generate their revenue in the form of Bitcoin, a rise in its price should help both their revenues and margins.
- Rumors of a potential short squeeze.
- Miners keep a large portion of the tokens they mine on their balance sheets rather than immediately converting them into cash. When the price of Bitcoin rises, this brings an amplified impact on the company’s stock prices.
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.
HUT – Daily Chart
#2 Bullish RSI: The RSI is above 50 and moving higher, indicating possible bullishness.
#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.
HUT – 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.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for HUT is above the price of $1.75.
Target Prices: Our first target is $2.60. If it closes above that level, the second target price is $3.50.
Stop Loss: To limit risk, place a stop loss at $1.30. Note that the stop loss is on a closing basis.
Our target potential upside is 49% to 100%.
For a risk of $0.45, our first target reward is $0.85, and the second target reward is $1.75. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses.
HUT – Consolidated Statements of Operations and Comprehensive Loss
- Currently, there is a relatively small use of Bitcoins and/or other cryptocurrencies in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect the Company’s operations, investment strategies, and profitability.
- Despite having a history of losses, the company executives are being paid significant compensation.
HUT – Executive Compensation
- The company faces significant competition from a number of data centre and cloud services providers in both Toronto and Vancouver. These include the major telecommunications providers such as Bell Canada, Rogers Communications Inc., and Cogeco Inc., and a number of data centre providers including CenturyLink, Inc., Cologix, Inc., and Equinix, Inc.
- Corporate Insiders Sold Shares Worth C$51.9K in the Last 3 Months.
Insiders | Source: TipRanks.com
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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