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: Xinyuan Real Estate Co., Ltd. (NYSE: XIN)
Today’s penny stock pick is the real estate development and construction company in the People’s Republic of China, Xinyuan Real Estate Co., Ltd. (NYSE: XIN).
Xinyuan Real Estate Co., Ltd. develops residential projects, such as multi-layer apartment buildings, sub-high-rise apartment buildings, high-rise apartment buildings; and auxiliary services and amenities, such as retail outlets, leisure and health facilities, kindergartens, and schools, as well as office, mixed-use, and commercial properties.
The company also acquires development sites through public auctions of government land and acquisitions of entities. In addition, it provides property management services for its developments and other real estate-related services; landscaping, engineering and management, real estate consulting, leasing management, management consulting, and technical services; operates retail stores; and installs intercom systems. Further, it engages in the purchase, sale, lease, and brokerage of real estate; sale of construction materials; development and sale of robots; operation of internet platform for real estate property financing; and provision of electronic commerce and catering services.
Website: https://www.xyre.com
Latest 10-k report: https://ir.xyre.com/node/11161/html
Analyst Consensus: Not Covered By Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- The company recently announced that during the third quarter of 2022, it had completed and delivered six projects in six cities in China with a total area of 292,000 square meters, in spite of numerous market-wide difficulties and constraints.
- Xinyuan received approvals of approximately $100M stimulus fund by the end of October to facilitate the completion of certain construction projects and is expected to obtain additional funding support from the government.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: 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 currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
XIN – 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 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.
XIN – 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 XIN is above the price of $4.60.
Target Prices: Our first target is $5.80. If it closes above that level, the second target price is $6.80.
Stop Loss: To limit risk, place a stop loss at $3.90. Note that the stop loss is on a closing basis.
Our target potential upside is 26% to 48%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.20. 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. XIN reported a net loss of US$67.5 million and US$413.3 million in 2020 and 2021, respectively.
XIN – Consolidated Statement of Operations
- The company’s property development business is capital-intensive. To date, XIN has funded its operations primarily through bank borrowings, proceeds from sales and pre-sale of its properties, and proceeds from the issuance of equity and debt securities. Any failure to obtain adequate financing in a timely manner could severely adversely restrict the company’s ability to complete existing projects, expand its business, or repay its obligations and affect the company’s financial performance and condition.
- In May 2019, an authorized entity of the local government, or the Government Entity, sued Beijing Huiju, the original controlling and existing shareholder of one of the Group’s equity method investees, Qingdao Huiju, for disputes in a construction contract entered into between the Government Entity and Beijing Huiju. The Government Entity also claimed that Qingdao Huiju is jointly liable for the aforementioned construction contract and a commitment letter issued by Beijing Huiju, and sued both Beijing Huiju and Qingdao Huiju to be jointly and severally liable for liquidated damage of US$230.9 million stipulated in the commitment letter.
- As a foreign private issuer, XIN is not required to follow customary practices applicable to U.S. domestic companies with respect to determining and disclosing executive compensation. The company has not disclosed the compensation details in its annual reports or proxy reports. However, XIN notes that it has entered into agreements that provide for the payment of annual bonuses based on a percentage of net income to certain of our executive officers and made arrangements or established bonus plans that provide for the payment of performance bonuses.
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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