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: NIO Inc. (NYSE: NIO)
Today’s penny stock pick is the Chinese multinational automobile manufacturer, NIO Inc. (NYSE: NIO).
NIO Inc. designs, develops, manufactures, and sells smart electric vehicles in China. It offers five and six-seater electric SUVs, as well as smart electric sedans. The company also offers power solutions, including Power Home, a home charging solution; Power Swap, a battery swapping service; Power Charger and Destination Charger; Power Mobile, a mobile charging service through charging vans; Power Map, an application that provides access to a network of public chargers and their real-time information; and One Click for Power valet service.
In addition, it provides repair, maintenance, and bodywork services through its NIO service centers and authorized third-party service centers; statutory and third-party liability insurance, and vehicle damage insurance through third-party insurers; repair and routine maintenance; roadside assistance; courtesy vehicle services; data packages; and auto financing and financial leasing services.
Further, the company is involved in the provision of energy and service packages to its users; design and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after-sales management activities. Additionally, it offers NIO Certified, a used vehicle inspection, evaluation, acquisition, and sales service.
Website: https://www.nio.com/
Latest 10-k report: https://ir.nio.com/static-files/9c90e26e-6c7f-42d0-9ffd-027935cdbc08
Analyst Consensus: As per TipRanks Analytics, based on 9 Wall Street analysts offering 12-month price targets for NIO in the last 3 months, the stock has an average price target of $5.21, which is nearly 10% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Hedge Funds Increased Holdings by 233.5K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- NIO delivered 13,863 vehicles in January, representing an increase of 37.9% year on year. The company’s latest financial results are expected this week.
- There is general optimism around the recovery of the Chinese economy.
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.
NIO – 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 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 color dotted line. This looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.
NIO – 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 NIO is above the price of $4.75.
Target Prices: Our first target is $6.50. If it closes above that level, the second target price is $8.00.
Stop Loss: To limit risk, place a stop loss at $3.80. Note that the stop loss is on a closing basis.
Our target potential upside is 37% to 68%.
For a risk of $0.95, our first target reward is $1.75, and the second target reward is $3.25. 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 and has not been profitable since its inception.
NIO – Consolidated Statements of Operations
- The automotive market is highly competitive. NIO competes with both NEV and ICE vehicles targeting the mid- to high-end segment. Many of the company’s competitors have significantly greater financial, engineering, manufacturing, marketing, and other resources.
- The company and certain of its directors and officers have been named as defendants in shareholder class action lawsuits and legal proceedings, which could have a material adverse impact on NIO’s business, financial condition, cash flows, and reputation.
- NIO is a Cayman Islands holding company with no equity ownership in the VIEs and conducts its operations in China primarily through PRC subsidiaries. Any change in China’s political or social conditions or government policies could have a material and adverse effect on the company’s business and results of operations.
- The company maintains a considerable level of indebtedness to finance its operations and business expansion.
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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