We recently started a series called “Penny Stock of the Day”. These ideas are geared for 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: Lightinthebox Holding Co Ltd (NYSE: LITB)
Today’s penny stock pick is the international online retail company, LightInTheBox Holding Co., Ltd.
LightInTheBox Holding Co., Ltd. operates as a cross-border e-commerce platform that delivers products directly from manufacturers to its customers worldwide. The company provides customized, special occasion, and fast fashion apparel products; and other general merchandise products, such as accessories and gadgets, home garden products, electronics and communication devices, and other products. It also provides supply chain management, research and development, customer, marketing, administrative and general support, logistic, warehouse management, and local delivery services, as well as technology research and development, mobile application software development, and information technology support services.
Website: www.lightinthebox.com
Latest 10-k report (20-F Report): https://sec.report/Document/0001104659-21-052843/a20-37586_120f.htm
Analyst Consensus: Not covered by analysts.
Potential Catalysts / Reasons for the Hype:
- Encouraging Second Quarter 2021 Financial Results, with 7.3% year-over-year increase in total revenue to $122.2 million from $113.9 million in the same quarter of 2020.
- Trading momentum coming in on tech stocks and e-commerce.
- LightInTheBox Holding insiders have a significant amount of capital invested in the stock. Insiders have invested US$70m worth of shares as a group.
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 was forming a falling wedge pattern for the past several weeks. 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 of the falling wedge pattern with very high volume, indicating possible bullishness. The stock is also trading above its 50-day SMA, indicating that the bulls are currently in control.
LITB – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line is currently moving higher from below the +DI and -DI lines.
#3 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.
#4 Bullish RSI: The RSI is currently above 50 and moving higher, indicating possible bullishness.
#5 Above Support Area: The weekly chart shows that the stock is trading above a resistance-turned-support area, which is marked as a pink color dotted line. This is a possible bullish indication.
LITB – Weekly Chart
#6 Bullish Stoch: In the weekly chart, the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for LITB is if it closes above the near-term resistance level. This translates to a price of above $1.80.
Target Prices: Our target prices are $2.50 and $3.50.
Stop Loss: To limit risk, place a stop loss at $1.40. Note that the stop loss is on a closing basis.
Our target potential upside is 39% to 94%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.70. 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 incurred net losses since inception and experienced net current liabilities and negative cash flow from operating activities in the past. LITB has net current liabilities of $14.3 million and $12.0 million as of December 31, 2019, and 2020, respectively.
LITB – Consolidated Statements of Operations
- The stock was been trading below $1 and had to file a notice with NYSE on March 30 their intent to become compliant. This was done to avoid possible delisting from the New York Stock Exchange on non-compliance with the required $1 per ADS closing price minimum.
- For Q4, LightInTheBox management is guiding for revenue of between $120 million and $135 million. That would amount to year-over-year growth in the 61% to 81% range — better growth than it has posted so far this year. However, that’s a wide range, perhaps reflecting some hesitancy on management’s part.
- The Company was named as a defendant in the first of three putative shareholder class action lawsuits filed in the United States District Court for the Southern District of New York. The company had to make US$1.55 million as a settlement.
- The online retail industry is intensely competitive. The company may not be able to compete successfully against current and future competitors, and competitive pressures may materially and adversely affect its business, financial condition, and results of operations.
- As per the latest annual report, the company has been involved in several intellectual property rights claims related to certain products posted on its website and mobile applications. As of the date of the annual report, the company was involved as defendants in one pending intellectual property legal proceeding. The associated liabilities of the legal proceeding are estimated to be around 100,000 Euro.
- Under the Foreign Currency Administration Rules (1996), as amended in 1997 and 2008, the foreign exchange proceeds of domestic entities and individuals can be remitted into China or deposited abroad, subject to the terms and conditions to be issued by the SAFE. Any escalation in trade tensions or a trade war, or news and rumors of the escalation of a potential trade war, could have a material and adverse effect on the company’s business.
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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