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: VNET Group, Inc. (NASDAQ: VNET)
Today’s penny stock pick is the provider of hosting and related services in China, VNET Group, Inc. (NASDAQ: VNET).
VNET Group, Inc. offers managed hosting services consisting of managed retail services, such as colocation services that dedicate data center space to house customers’ servers and networking equipment, as well as allow customers to lease partial or entire cabinets for their servers; interconnectivity services that allow customers to connect their servers; value-added services, including hybrid IT, bare metal, firewall, server load balancing, data backup and recovery, data center management, server management, and backup server services; cloud services that allow customers to run applications over the internet using IT infrastructure; and VPN Services that extend customers’ private networks by setting up connections through the public internet.
The company also provides server administration services, such as operating system support and assistance with updates, server monitoring, server backup and restoration, server security evaluation, firewall services, and disaster recovery services. It serves information technology and cloud services, communications and social networking, gaming and entertainment, e-commerce, automobile, financial services, and blue-chip and small-to-mid-sized enterprises; government agencies; individuals; and telecommunication carriers.
Website: https://www.vnet.com
Latest 10-k report: https://ir.vnet.com/sec-filings/sec-filing/20-f/0001104659-23-050330
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for VNET in the last 3 months, the stock has an average price target of $5.48, which is nearly 68% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported second-quarter EPS of ¥0.26, ¥0.34 better than the analyst estimate of ¥-0.08. Revenue for the quarter came in at ¥1.82B versus the consensus estimate of ¥1.88B.
- Rumors of buyout.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
VNET – 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.
VNET – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 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 VNET is above the price of $3.45.
Target Prices: Our first target is $4.50. If it closes above that level, the second target price is $6.00.
Stop Loss: To limit risk, place a stop loss at $2.80. Note that the stop loss is on a closing basis.
Our target potential upside is 30% to 74%.
For a risk of $0.65, our first target reward is $1.05, and the second target reward is $2.55. 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. VNET incurred a net loss of RMB2,680.3 million in 2020 and a net loss of RMB762.0 million in 2022.
VNET – Consolidated Statements of Losses
- Hedge Funds Decreased Holdings by 10.9K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company was formerly known as 21Vianet Group, Inc. and changed its name to VNET Group, Inc. in October 2021.
- The company has ongoing legal proceedings, like Arbitration with TEDA Venture Capital Corporation Limited in relation to the acquisition of BJ TenxCloud, and Disputes with Shanghai VNET Information System Co., Ltd.
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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