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: Canaan Inc. (NASDAQ: CAN)
Today’s penny stock pick is the technology company focusing on ASIC high-performance computing chip design, Canaan Inc. (NASDAQ: CAN).
Canaan Inc. engages in the research, design, and sale of integrated circuits (IC), and lease of final mining equipment by integrating IC products for bitcoin mining and related components in the People’s Republic of China. It is also involved in the assembly and distribution of mining equipment and spare parts, and distribution of artificial intelligence products, as well as mining business.
Website: https://investor.canaan-creative.com/
Latest 10-k report: https://investor.canaan-creative.com/static-files/1ea33cab-da0b-434f-893c-8df9844654c2
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for CAN in the last 3 months, the stock has an average price target of $2.67, which is nearly 50% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Canaan Creative Global Pte. Ltd., a wholly owned Singapore subsidiary of the Company, entered into a purchase agreement with HIVE Digital Technologies Ltd, for its Avalon A1566 miners. CCG will provide HIVE with 6,500 Avalon A1566 miners, with an average computing power of 185 Terahash per second (TH/s). Of the 6,500 A1566 miners, 500 miners have been immediately delivered and are scheduled for installation. The remaining 6,000 machines will be delivered in four monthly shipments of 1,500 units, from December 2024 through March 2025.
- The potential for China to go pro-bitcoin.
- Hedge Funds Increased Holdings by 98.4K 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 Breakout From Consolidation Area: The daily chart shows that the stock has been consolidating within a price range for the past few days. This area is marked as a purple color rectangle. The stock has now broken out from this consolidation area with a high volume and is currently trading above it. The breakout level of this consolidation area typically acts as a good support level.
CAN – 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 Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#5 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink dotted line. This is a possible bullish indication.
CAN – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 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 CAN is above $1.80.
Target Prices: Our first target is $3.30. If it closes above that level, the second target price is $4.50.
Stop Loss: To limit risk, place a stop loss at $0.90. Note that the stop loss is on a closing basis.
Our target potential upside is 83% to 150%.
For a risk of $0.90, our first target reward is $1.50, and the second target reward is $2.70. 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:
- In 2023, the company incurred negative cash flow from operating activities of US$123.6 million and a net loss of US$414.2 million.
CAN – Consolidated Statements of Operations
- The company has ongoing legal proceedings. On April 15, 2021, a putative class action, Denny v. Canaan, Inc., et al., Case No. 21-cv-03299-JPC, was filed in the U.S. District Court for the Southern District of New York against the company.
- CAN generates almost all its revenues from the sales of Bitcoin mining machines that incorporate the company’s proprietary ASICs. In 2021, 2022, and 2023, sales of Bitcoin mining machines and related parts and accessories accounted for 99.1%, 94.8%, and 83.1% of CAN’s revenues, respectively.
- The company has customer concentration risk. For the year ending December 31, 2022, CAN’s top three customers accounted for 33%, 22%, and 16% of total revenue respectively.
- A significant portion of the company’s assets and operations is in China. Accordingly, CAN’s business, financial condition, results of operations, and prospects may be influenced by economic, political, and social conditions in China generally.
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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