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: Avaya Holdings Corp (NYSE: AVYA)
Today’s penny stock pick is the American multinational technology company, Avaya Holdings Corp (NYSE: AVYA).
Avaya Holdings Corp provides digital communications products, solutions, and services for businesses worldwide. The company operates in two segments, Products & Solutions and Services. The Products & Solutions segment offers unified communications and collaboration (UCC), and contact center (CC) platforms, applications, and devices. It also provides Avaya OneCloud UCaaS solutions.
Website: https://www.avaya.com
Latest 10-k report: https://sec.report/Document/0001418100-21-000095
Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for AVYA in the last 3 months, the stock has an average price target of $2.48, which is nearly 23% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- According to WSJ, the company is gaining popularity as a meme stock.
- Corporate Insiders Bought Shares Worth $7.2M in the Last 3 Months.
Insiders | Source: TipRanks.com
- Potential for significant short covering in the near-term.
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.
AVYA – 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 MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#5 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.
#6 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 is a possible bullish indication.
AVYA – Weekly Chart
#7 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 AVYA is above the price of $2.10.
Target Prices: Our first target is $3.10. If it closes above that level, the second target price is $4.30.
Stop Loss: To limit risk, place a stop loss at $1.50. Note that the stop loss is on a closing basis.
Our target potential upside is 48% to 105%.
For a risk of $0.60, our first target reward is $1.00, and the second target reward is $2.2. 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 a history of net losses. AVYA’s net loss was $13 million for fiscal 2021 compared to $680 million for fiscal 2020.
AVYA – Consolidated Statements of Operations
- The company has been under investigation by Schubert Jonckheer & Kolbe LLP. The firm is investigating whether Avaya violated state and federal laws and utilized misleading business information to entice investors.
- Hedge Funds Decreased Holdings by 1.0M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
AVYA – Executive Compensation: Summary Compensation Table
- On January 14, 2020, Solaborate Inc. and Solaborate LLC filed suit against the Company in California Superior Court in San Bernardino County. The dispute concerns activities related to the Company’s development of the CU360 collaboration unit. Solaborate alleges breach of contract, trade secret misappropriation, and unfair business practices, among other causes of action.
- AVYA faces formidable competition from providers of unified communications and contact center solutions and services, including cloud-based solutions, and this competition may negatively impact its business and limit the company’s growth.
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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