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: TuSimple Holdings Inc. (NASDAQ: TSP)
Today’s penny stock pick is the autonomous technology company, TuSimple Holdings Inc. (NASDAQ: TSP).
TuSimple Holdings Inc. develops autonomous technology specifically designed for semi-trucks in the United States and internationally. It intends to produce a line of purpose-built (Level 4) L4 autonomous semi-trucks for the North American market. The company operates its Autonomous Freight Network (AFN) L4 autonomous semi-trucks equipped with its autonomous driving technology. Its AFN is an ecosystem that consists of L4 autonomous semi-trucks, high definition digital mapped routes, terminals, and TuSimple Connect, a cloud-based autonomous operations oversight system.
Website: https://www.tusimple.com
Latest 10-k report: https://ir.tusimple.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=15595839
Analyst Consensus: Not Covered By Wall Street Analysts
Potential Catalysts / Reasons for the Hype:
- TuSimple stock has currently averted NASDAQ delisting until June 22 for now. It was expected to be suspended from trading from May 15 onwards.
- A potential short squeeze, caused by an excess of short selling of TSP. A short squeeze would accelerate the stock’s price rise when short sellers bail out to cut their losses.
- The company reported that it will lay off 30% of its workforce in the U.S. While that will cost the company $12 million to $13 million in a one-time charge, the move could also save it up to $68 million on its annual cash-compensation expenses. TuSimple had already announced a 25% reduction in its workforce in December. TuSimple also said it will no longer divest its Asia-Pacific operations as it continues to develop fully autonomous driving solutions for commercial freight trucks in the region.
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.
TSP – 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.
TSP – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 MACD above Signal Line: In the weekly chart as well, 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 TSP is above the price of $2.10.
Target Prices: Our first target is $2.80. If it closes above that level, the second target price is $3.30.
Stop Loss: To limit risk, place a stop loss at $1.70. Note that the stop loss is on a closing basis.
Our target potential upside is 33% to 57%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.20. 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. TSP incurred net losses of $177.9 million and $732.7 million for the years ended December 31, 2020, and 2021, respectively. TSP also has an accumulated deficit of $1.1 billion as of December 31, 2021.
TSP – Consolidated Statements of Operations
- The company has Chinese roots and large operations in China. The Committee on Foreign Investment in the United States (CFIUS) has been reviewing the 2017 investment into the company from Chinese technology company Sina. CFIUS has recommended that the U.S. Justice Department consider economic espionage charges against the company’s two co-founders, Chen Mo, and Hou Xiaodi, along with CEO Lu Cheng, according to a Wall Street Journal report, citing unnamed sources. Consequently, CEO Cheng Lu was ousted early last year. However, he was then brought back in November
- Most of the members of TSP’s management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies.
- In the past, the company had identified control deficiencies in the design and implementation of its internal control over financial reporting that constituted a material weakness.
- The company still hasn’t filed its financial report in Form 10-Q for the quarter that ended Sept. 30, 2022, nor has it filed its annual report in Form 10-K for the year that ended Dec. 31. Consequently, TuSimple recently received a delisting notice from Nasdaq due to its failure to file quarterly and annual earnings reports.
- Despite being a loss-making company, the executives are being paid millions as compensation.
TSP – 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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