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: HUYA Inc. (NYSE: HUYA)
Today’s penny stock pick is the game live streaming platform provider, HUYA Inc. (NYSE: HUYA).
HUYA Inc. operates game live streaming platforms in the People’s Republic of China. Its platforms enable broadcasters and viewers to interact during live streaming. The company’s live streaming content also covers other entertainment content, such as talent shows, anime, outdoor activities, live chats, and other genres. In addition, it operates Nimo TV, a game live streaming platform in international markets. Further, the company provides online advertising, cnt, internet value added, and cultural and creative services.
Website: https://www.huya.com
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for HUYA in the last 3 months, the stock has an average price target of $3.35, which is nearly 32% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Live streaming has soared in popularity in recent years. In 2022 alone, the live-streaming industry was worth 152 billion yuan ($21 billion), according to research firm Analysys.
- Many Chinese live streaming and chat apps had to halt services due to police investigations. HUYA’s recent earnings decline was caused due to the elimination of certain live-streaming features to curb potential illegal gambling activities. However, the pause is anticipated to be over soon. Beijing has officially concluded its extended regulatory crackdown on the tech sector, while surveillance continues primarily aiming to align social and business operations with socialist values.
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.
HUYA – Daily Chart
#2 Bullish RSI: The RSI is nearing 50 and moving higher, indicating possible bullishness.
#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 looks like a good area for the stock to move higher.
HUYA – 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 HUYA is above the price of $2.70.
Target Prices: Our first target is $3.70. If it closes above that level, the second target price is $4.40.
Stop Loss: To limit risk, place a stop loss at $2.10. Note that the stop loss is on a closing basis.
Our target potential upside is 37% to 63%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $1.70. 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:
- In 2022, the company incurred a net loss of RMB486.7 million (US$70.6 million).
HUYA – Consolidated statements of comprehensive income or loss
- Hedge Funds Decreased Holdings by 80.7K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Insiders do not own HUYA.
Ownership | Source: TipRanks.com
- The company has a limited operating history, particularly as a stand-alone company. The Huya platform was launched in 2014 as a business unit of JOYY. The company began its business operations overseas only in May 2018.
- HUYA faces stiff competition in several major aspects of its business, particularly from companies that provide game live streaming services and other online entertainment services. Intensified government regulations, rules, or guidelines of the internet industry in mainland China could also restrict the company’s ability to maintain or increase the level of user traffic, and user spending on the platform as well as its ability to tap into other market opportunities, and negatively impact the businesses, results of operations, or financial condition.
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.
Where to Invest $99 [sponsor]Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.