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: Opendoor Technologies Inc. (NASDAQ: OPEN)
Today’s penny stock pick is the real estate services company, Opendoor Technologies Inc. (NASDAQ: OPEN).
Opendoor Technologies Inc. operates a digital platform for residential real estate in the United States. The company’s platform enables consumers to buy and sell a home online. It also provides title insurance and escrow services. The platform specializes in the iBuyer business model and leverages advanced technologies such as artificial intelligence to make quick cash offers on homes with the ultimate goal of flipping them for profit.
Website: https://www.opendoor.com
Latest 10-k report: https://investor.opendoor.com/sec-filings/sec-filing/10-k/0001801169-22-000027
Analyst Consensus: As per TipRanks Analytics, based on 9 Wall Street analysts offering 12-month price targets for OPEN in the last 3 months, the stock has an average price target of $4.69, which is nearly 183% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company recently launched a marketplace in Dallas-Fort Worth and Austin, Texas, under the brand Opendoor Exclusives. This could be a substantial long-term opportunity.
- The company has good underlying financials and appears to be an undervalued investment based on sales (0.05-times sales, well below the sector median of 2.6 times) and book value (0.58-times book value, below the industry median of 0.77 times).
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.
OPEN – 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 MA: The stock is currently above its 50-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 looks like a good area for the stock to move higher.
OPEN – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, and is also moving higher from oversold levels, 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 OPEN is above the price of $1.75.
Target Prices: Our first target is $2.70. If it closes above that level, the second target price is $3.40.
Stop Loss: To limit risk, place a stop loss at $1.20. Note that the stop loss is on a closing basis.
Our target potential upside is 54% to 94%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $1.55. 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. OPEN incurred net losses of $662 million, $253 million, and $339 million for the years ended December 31, 2021, 2020, and 2019, respectively.
OPEN – Consolidated Statements of Operations
- Corporate Insiders Sold Shares Worth $8.9M in the Last 3 Months.
Insiders | Source: TipRanks.com
- On December 15, 2022, CNBC reported that home flipping profits dropped at the fastest pace in over a decade. The raising of the benchmark interest rate and the decline in consumer spending data is also significant headwinds for the stock.
- Hedge Funds Decreased Holdings by 9.1M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has ongoing legal proceedings. In August 2019, the Federal Trade Commission sent a civil investigative demand to Opendoor Labs Inc., the company’s wholly-owned subsidiary, seeking documents and information relating primarily to statements in OPEN’s advertising and website comparing selling homes to OPEN with selling homes in a traditional manner using an agent and relating to statements that the company’s offers reflect or are based on market prices.
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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