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: Jumia Technologies AG (NYSE: JMIA)
Today’s penny stock pick is the e-commerce platform in Africa, Jumia Technologies AG (NYSE: JMIA).
Jumia Technologies AG, dubbed the “Amazon of Africa”, operates an e-commerce platform in West Africa, North Africa, East and South Africa, Europe, the United Arab Emirates, and internationally. The company’s platform consists of a marketplace that connects sellers with consumers; a logistics service that enables the shipment and delivery of packages from sellers to consumers; and a payment service, which facilitates transactions to participants active on the company’s platform in selected markets.
Its marketplace offers various products in a range of categories, such as fashion and apparel, beauty and personal care, home and living, fast-moving consumer goods, smartphones, and other electronics, as well as access to various services, including restaurant food delivery, airtime recharge, and utility bills payment services.
Website: https://group.jumia.com
Latest 10-k report: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001756708/fa03a4e3-ad7a-4721-9814-806d024c6519.html
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering ratings for JMIA in the last 3 months, the stock has an average rating of “Hold”.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors of a potential buyout.
- An overall positive sentiment regarding investing in the North and South Africa.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
JMIA – 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 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 looks like a good area for the stock to move higher.
JMIA – 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.
#8 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for JMIA is above the price of $4.20.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $7.70.
Stop Loss: To limit risk, place a stop loss at $3.10. Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 83%.
For a risk of $1.10, our first target reward is $1.80, and the second target reward is $3.50. 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. JMIA incurred a loss for the year of $183.7 million in 2020, a loss for the year of $226.9 million in 2021, and a loss for the year of $238.3 million in 2022.
JMIA – Consolidated Statement of Operations
- The company was formerly known as Africa Internet Holding GmbH and changed its name to Jumia Technologies AG in January 2019.
- Hedge Funds Decreased Holdings by 876.9K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Since May 2019, several putative class action lawsuits were filed in the U.S. District Court for the Southern District of New York and the New York County Supreme Court against the company, certain of its management and supervisory board members, the underwriters of its IPO, its U.S. representative and, in New York State court, its auditor. The cases asserted claims under federal securities laws based on alleged misstatements and omissions in connection with, and following, the company’s initial public offering. Jumia has to make a settlement payment of USD 5 million on January 18, 2021.
- Despite being a loss-making company, the executives are being paid significant compensation.
JMIA – Executive Compensation
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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