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: Microvast Holdings, Inc. (NASDAQ: MVST)
Today’s penny stock pick is the battery systems manufacturer, Microvast Holdings, Inc. (NASDAQ: MVST).
Microvast Holdings, Inc. designs, develops, and manufactures battery systems for electric vehicles and energy storage systems. The company offers a range of cell chemistries, such as lithium titanate oxide, lithium iron phosphate, and nickel manganese cobalt version 1 and 2.
It also designs, develops, and manufactures battery components, such as cathode, anode, electrolyte, and separator. In addition, the company offers battery solutions for commercial vehicles and energy storage systems. Its commercial vehicle markets cover buses, trains, mining trucks, marine and port applications, and automated guided and specialty vehicles, as well as light, medium, heavy-duty trucks in the United States and internationally.
Website: https://www.microvast.com
Latest 10-k report: https://sec.report/Document/0001213900-22-015871
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for MVST in the last 3 months, the stock has an average price target of $8.00, which is nearly 259% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported that its “thermally stable polyaramid separator manufacturing plant proposal” is set to receive $200 million under the newly revealed $2.8 billion American Battery Material Initiative, which seeks to boost the production of electric vehicles in the US by facilitating battery manufacturing and domestic mining of requisite minerals. Microvast said that the company will build a separator facility capable of supplying 19 gigawatt-hour (GWh) of EV batteries, including their existing 2 GWh battery plant in Clarkesville, TN.
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.
MVST – 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.
MVST – 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 MVST is above the price of $2.40.
Target Prices: Our first target is $4.00. If it closes above that level, the second target price is $5.00.
Stop Loss: To limit risk, place a stop loss at $1.50. Note that the stop loss is on a closing basis.
Our target potential upside is 67% to 108%.
For a risk of $0.90, our first target reward is $1.60, 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 reported a net loss of approximately $206.5 million for the year ended December 31, 2021, and an accumulated deficit of approximately $632.1 million since its inception in 2006 through the year ended December 31, 2021.
MVST – Consolidated Statements of Operations
- Hedge Funds Decreased Holdings by 2.6M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Although the company has papers for a Houston incorporation, it has a significant Chinese connection. Most, if not all of their battery-making operations are located in China.
- For the “Thermally Stable Polyaramid Separator U.S. Manufacturing Plant”, MVST is expected to invest $304Mby the government. The company may need to raise additional capital for that by potentially selling additional shares, resulting in dilution.
- Despite being a loss-making company, the executives are being paid significant compensation.
MVST – 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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