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: CBAK Energy Technology Inc. (NASDAQ: CBAT)
Today’s penny stock pick is the CBAK Energy Technology Inc. (NASDAQ: CBAT).
CBAK Energy Technology Inc. is engaged in the manufacture, commercialization, and distribution of a variety of standard and customized lithium-ion high power rechargeable batteries which are mainly used in electric vehicles, light electric vehicles, electric tools, energy storage, uninterruptible power supply, and other high power applications.
The company manufactures five types of Li-ion rechargeable batteries namely aluminum-case cell, battery pack, cylindrical cell, lithium polymer cell, and high-power lithium battery cell. Geographically, it generates a majority of its revenue from Mainland China and also has an operation in Europe, the United States, Israel, and Other Countries.
Website: www.cbak.com.cn
Latest 10-k report: https://sec.report/Document/0001213900-21-021294
Analyst Consensus: Not Covered By Analysts
Potential Catalysts / Reasons for the Hype:
- The company announced that it will report its unaudited financial results for the third quarter ended September 30, 2021, on Friday, November 12, 2021, before the U.S. market opens.
- It is rumored that institutions are behind the current massive move.
- Rumors about a potential tie-up with two EV Manufactures including Nio.
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 high volume, indicating possible bullishness. The stock is also trading above its 50-day moving average, indicating that the bulls are slowly gaining control.
CBAT – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and ADX line 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 Stoch: In the daily chart shows that the %K line of the stochastic is above the %D line and is also currently moving higher, indicating bullishness.
#5 Above Support Area: The weekly chart shows that the stock is trading above a support area, which is marked as an orange color dotted line. This is a possible bullish indication.
CBAT – Weekly Chart
#6 Broken Downtrend: As seen in the weekly chart, the stock has currently broken out of a downtrend, and is moving higher. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CBAT is above the price of $3.70.
Target Prices: Our target prices are $4.50 and $6.00.
Stop Loss: To limit risk, place a stop loss at $3.25. Note that the stop loss is on a closing basis.
Our target potential upside is 22% to 62%.
For a risk of $0.45, our first target reward is $0.80, and the second target reward is $2.30. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- CBAT is a loss-making company. It had reported a net loss of $7.8 million and $10.9 million in the fiscal years ended December 31, 2020, and 2019, respectively.
CBAT – Consolidated Statements of Operations and Comprehensive Loss
- There have been frequent changes in the company business type as well as the company name over the past few years. The company was formerly: CHINA BAK BATTERY INC (filings through 2017-01-13); and formerly: MEDINA COFFEE INC (filings through 2005-02-14).
- CBAT has multiple ongoing legal proceedings.
- On July 7, 2016, Shenzhen Huijie Purification System Engineering Co., Ltd, one of the Company’s contractors, filed a lawsuit against CBAK Power in the Peoples’ Court of Zhuanghe City, Dalian, for failure to pay pursuant to the terms of the contract and entrusting part of the project of the contract to a third party without their prior consent.
- On July 25, 2019, Shenzhen Xinjiatuo Automobile Technology Co., Ltd filed an arbitration against the Company for failure to pay pursuant to the terms of the contract.
- In September 2019, Shenzhen HSL Business Technology Co., Ltd filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of purchase contract.
- In November 2019, Suzhou Industrial Park Security Service Co., Ltd filed a lawsuit against CBAK Suzhou for failure to pay pursuant to the terms of the sales contract.
- In early September of 2019, several employees of CBAK Suzhou filed arbitration with Suzhou Industrial Park Labor Disputes Arbitration Commission against CBAK Suzhou for failure to pay their salaries in time.
- In October 2019, Chongqing Zhongrun Chemistry Co., Ltd filed arbitration claims against the Company for failure to pay pursuant to the terms of the contract.
- In October 2019, Hunan Zhongke Xingcheng Co., Ltd filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract.
- In December 2019, Dalian Construction Electrical Installation Engineering Co., Ltd. filed a lawsuit against CBAK Power for the failure to pay pursuant to the terms of the construction contract.
- In February 2020, Dongguan Shanshan Battery Material Co., Ltd filed a lawsuit against CBAK Power for failure to pay pursuant to the terms of the purchase contract.
- There are multiple such ongoing legal proceedings, from BTR Tianjin Nanomaterial Manufacturing Co., Ltd; United Winners Laser Co., Ltd; Beijing Hongfa Electric Technology Co., Ltd; Cangzhou Huibang Engineering Manufacturing Co., Ltd; Shenzhen Klclear Technology Co., Ltd.; Tianjin Changxing Metal Co., Ltd; Tianjin Changyuan Electric Material Co., Ltd; New Energy Technology Co., Ltd; Jiangxi Ganfeng Battery Technology Co., Ltd; Suzhou Jihongkai Machine Equipment Co., Ltd; Nanjing Jinlong Chemical Co., Ltd.; Shenzhen Gd Laser Technology Co., Ltd.; Shandong Tianjiao New Energy Co. LTD; Shanghai Shengmeng Industrial Technology Co., Ltd.; Jiuzhao New Energy Technology Co., Ltd.; Dalian Tianda Metal Machinery Trade Co., Ltd.; Shenzhen Haoneng Technology Co., Ltd.; Suzhou Suwangda Plastic Product Co., Ltd; and Shandong Hangewei New Energy Vehicle Control Co., Ltd.
- The company is being investigated for possible securities law violations. Hagens Berman’s investigation centers on whether CBAK Energy misled investors about the company’s battery technology and financial performance.
- As per the report from market analyst J Capital Research, “CBAT has all the hallmarks of a Chinese fraud. CBAT claims to be an EV company, but actually, it makes AA-size batteries for small appliances, and we contacted the auto companies CBAT claims are big clients, and they denied they do business with CBAT.” The report also concludes CBAK Energy artificially inflates the balance sheet with phony construction accounts and inflates 50% of its revenues through fake sales.
- The company had received notice from the Listing Qualifications Department of The NASDAQ Stock Market for lack of compliance with the NASDAQ Listing Rule 5550(a)(2) and faced the risk of delisting.
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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