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: Peloton Interactive, Inc. (NASDAQ: PTON)
Today’s penny stock pick is the company that provides interactive fitness platform, Peloton Interactive, Inc. (NASDAQ: PTON).
Peloton Interactive, Inc. offers connected fitness products with a touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, and Peloton Row names. The company markets and sells its interactive fitness products directly through its retail showrooms and at onepeloton.com.
Website: https://www.onepeloton.com
Latest 10-k report: https://investor.onepeloton.com/sec-filings/sec-filing/10-k/0001639825-23-000132
Analyst Consensus: As per TipRanks Analytics, based on 21 Wall Street analysts offering 12-month price targets for PTON in the last 3 months, the stock has an average price target of $7.79, which is nearly 68% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company announced a five-year partnership to develop content for Lululemon. Peloton will develop digital fitness content for Lululemon, while Lululemon will become Peloton’s primary athletic apparel provider.
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 is currently moving higher from the lower rail of the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
PTON – Daily Chart
#2 Oversold RSI: The RSI is currently moving higher from oversold levels, 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.
PTON – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 PTON is above the price of $4.90.
Target Prices: Our first target is $6.40. If it closes above that level, the second target price is $7.20.
Stop Loss: To limit risk, place a stop loss at $4.20. Note that the stop loss is on a closing basis.
Our target potential upside is 31% to 47%.
For a risk of $0.70, our first target reward is $1.50, and the second target reward is $2.30. 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. PTON reported a net loss of $1,261.7 million for the fiscal year ended June 30, 2023.
PTON – Consolidated Statements of Operations and Comprehensive Loss
- Insiders do not have ownership of PTON, indicating a lack of confidence in the company.
Ownership | Source: TipRanks.com
- Hedge Funds Decreased Holdings by 3.5M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company executives are being paid millions as compensation even though the company has been reporting losses over the years.
PTON – Executive Compensation
- In May 2021, PTON initiated a voluntary recall of its Tread+ product in collaboration with the CPSC. In December 2022, PTON had to enter into a settlement agreement with the CPSC regarding matters related to the Tread+ recall. In the settlement PTON agreed to pay a $19.1 million civil penalty, resolving the CPSC’s charges that PTON violated the Consumer Product Safety Act.
- The company has multiple ongoing legal proceedings.
- On April 29, 2021, Ashley Wilson filed a putative securities class action lawsuit against the Company and certain of its officers, captioned Wilson v. Peloton Interactive, Inc., et al., Case No. 1:21-cv-02369-CBA-PK.
- On May 20, 2021, Alan Chu filed a verified shareholder derivative action lawsuit purportedly on behalf of the Company against certain of the Company’s current and former officers and directors, captioned Chu v. Foley, et al., Case No. 1:21-cv-02862.
- On November 18, 2021, the City of Hialeah Employees’ Retirement System filed a putative securities class action lawsuit against the Company and certain of its current and former officers in the United States District Court for the Southern District of New York, captioned City of Hialeah Employees’ Retirement System v. Peloton Interactive, Inc., Case No. 21-cv-09582-ALC.
- On February 21, 2023 stockholders Allison Manzella and Clark Ovruchesky filed a putative verified stockholder derivative action in the Court of Chancery in the State of Delaware on behalf of the Company against certain of the Company’s current and former officers and directors, captioned Manzella v. Cortese, et al., C.A. No. 2023-0224-KSJM.
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.