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: Qudian Inc. (NYSE: QD)
Today’s penny stock pick is the Chinese technology company, Qudian Inc. (NYSE: QD).
Qudian Inc. operates as a consumer-oriented technology company in the People’s Republic of China. It engages in the operation of online platforms to provide small consumer credit products, as well as provides technology development and services, and research and development services.
Website: https://www.qudian.com
Latest 10-k report: https://ir.qudian.com/node/8231/html
Analyst Consensus: Not covered by Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- Qudian announced it will become a last-mile delivery specialist, with an initial focus on the Australian, New Zealand, and U.S. markets. The Company operates such business under the brand name of “Fast Horse.”
- Hedge Funds Increased Holdings by 76K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
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.
QD – 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 MAs: The stock is currently above its 50-day as well as 200-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. The stock is also trading above its 50-week as well as 200-week SMA, indicating that the bulls are in control.
QD – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 QD is above the price of $1.89.
Target Prices: Our first target is $2.50. If it closes above that level, the second target price is $3.00.
Stop Loss: To limit risk, place a stop loss at $1.55. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 59%.
For a risk of $0.34, our first target reward is $0.61, and the second target reward is $1.11. 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 reported a net loss of RMB362.1 million (US$52.5 million) in 2022.
QD – Consolidated Statements of Operations
- The company has historically derived substantial revenue from its credit business. The Group is in the process of winding down its credit business, and its revenue may decrease significantly.
- Min Luo, the company’s founder, chairman of the board, and chief executive officer, beneficially owns 80.1% of the aggregate voting power as of March 31, 2023. As a result, Mr. Min Luo has the ability to control or exert significant influence over important corporate matters, investors may be prevented from affecting important corporate matters involving the company that require the approval of shareholders.
- Since QD’s operations are conducted in the PRC and all of the revenue is sourced from the PRC, the company’s financial condition and results of operations will be affected to a significant extent by economic, political, and legal developments in the PRC.
- The company has been subject to various legal or administrative claims and proceedings.
- QD was named as a defendant in four putative securities class actions filed in the United States District Court for the Southern District of New York: Ramnath v. Qudian Inc. et al., Civil Action No. 1:17-cv-09741-RA (S.D.N.Y.), Maia v. Min Luo et al., Civil Action No. 1:17-cv-09796-RA (S.D.N.Y.), Foat v. Qudian Inc. et al., Civil Action No. 1:17-cv-09875-RA (S.D.N.Y.), and Perez v. Qudian Inc. et al., Civil Action No. 1:17-cv-09903-RA (S.D.N.Y.).
- The company was named defendant in two putative securities class actions filed in New York Supreme Court, Panther Partners Inc. v. Qudian Inc., Index No. 651804/2018 (N.Y. Sup. Ct., N.Y. Cty.), and The Morrow Property Trust v. Qudian Inc., Index No. 653047/2018 (N.Y. Sup. Ct., N.Y. Cty.).
- The company was named defendant in a putative securities class action filed on January 22, 2020, in the United States District Court for the Southern District of New York, captioned Greco et al v. Qudian Inc. et al, Case 1:20-cv-00577-GHW (S.D.N.Y.)
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.
This is the #1 Stock to Buy for the AI Tidal Wave [sponsor]Marc Chaikin warned people about NVDA before its 2023 bull run - now he's naming his next pick or the AI tidal wave. Learn more here.