The allure of penny stocks lies in their potential to deliver massive gains in a short period of time.
But in exchange for that opportunity, penny stocks carry TREMENDOUS risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.
How is this possible? For starters, the majority of penny stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In short, OTC-traded penny stocks don’t meet the rigorous standards required to trade on major exchanges like the NYSE, NASDAQ, and AMEX.
As a result, they can go largely “unchecked” and their financial condition can be extremely difficult to analyze. In the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment.
With this in mind, and to give you an idea of the kind of red flags to look for when you’re considering a penny stock, we’re taking a closer look at five of today’s most hyped penny stocks. These stocks are being touted by YouTube “influencers” with far-reaching audiences, carrying the risk of a “pump and dump”.
|Sl #||Name||Ticker||Last Close|
|1||Lipocine Inc.||NASDAQ: LPCN||$1.43|
|2||Tyme Technologies Inc.||NASDAQ: TYME||$1.34|
|3||BioNano Genomics Inc.||NASDAQ: BNGO||$7.20|
|4||Microvision, Inc.||NASDAQ: MVIS||$5.21|
|5||Alpine 4 Technologies Ltd||OTCMKTS: ALPP||$2.78|
#1 Lipocine Inc. (NASDAQ: LPCN)
Company Info: Lipocine Inc is a specialty pharmaceutical company focused on the development of pharmaceutical products in the area of men’s and women’s health. Its primary development programs are based on oral delivery solutions for poorly bioavailable drugs. The company has a portfolio of product candidates designed to produce pharmacokinetic characteristics, facilitate lower dosing requirements, bypass the first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal interactions that limit bioavailability. Its principal product candidate is TLANDO, an oral testosterone replacement therapy. Lipocine’s clinical development pipeline includes LPCN 1144, TLANDO XR, LPCN 1148, and LPCN 1107.
Last Close: $1.43
Reason for the hype: U.S. Food and Drug Administration (FDA) granted tentative approval to TLANDO, the company’s oral testosterone product for testosterone replacement therapy; LPCN’s top-line Phase II results of LPCN 1144 for potential utility in the treatment of non-cirrhotic NASH is expected to be released in January of 2021 which would be followed by liver biopsy results reflecting the 36-week treatment period by July 2021; and the upcoming jury trial wherein LPCN is fighting with its four patents against Clarus Therapeutics.
Latest 10-k report: https://sec.report/Document/0001104659-20-032764/
- LPCN has incurred losses in most years since inception and has been posting increasing losses. As of December 31, 2019, the company’s accumulated deficit stands at $151.0 million. The company reported a net loss of $13.0 million for the year ended December 31, 2019, compared to $11.7 million for the year ended December 31, 2018.
- The company has had multiple legal proceedings. On July 1, 2016, the Company and some of its officers were named as defendants in a purported shareholder class action lawsuit, ‘David Lewis v. Lipocine Inc et al., 3:16-cv-04009-BRM-LHG’ in New Jersey. The lawsuit alleged that the defendants made false and/or misleading statements and/or failed to disclose that the filing of the NDA for TLANDO to the FDA contained deficiencies. This was settled out of court, for $4.3 million, of which only $3.6 million was covered by the insurance. A shareholder derivative complaint ‘John Wajda, derivatively on behalf of Lipocine Inc. v. Mahesh Patel, et al.’ was filed against the company on February 15, 2019, in Delaware, which is still ongoing. Another class action lawsuit, ‘Solomon Abady v. Lipocine Inc. et al., 2:19-cv-00906-PMW’ was filed in the United District Court for the District of Utah on November 14, 2019. This is also ongoing.
- The company’s revenue decreased from $428,031 in 2018 to $164,990 in 2019.
- The company relies on a single supplier for the supply of TU, the active pharmaceutical ingredient of TLANDO and LPCN 1144. The company also depends on M.W. Encap Ltd. for the supply of the TLANDO capsules. The loss of supplier could harm the company’s business. Any increase in price for TU will also reduce the company’s gross margins.
- LPCN has significant debt service obligations, including a $10 million Loan and Security Agreement with Silicon Valley Bank. Of that, the company is required to maintain $5.0 million of cash collateral at SVB until the approval of TLANDO by the FDA.
- Although FDA granted tentative approval to TLANDO, TLANDO has not received final approval and is not eligible for final approval and marketing in the U.S. until the expiration of the exclusivity period previously granted to Clarus Therapeutics, Inc. with respect to Jatenzo®, which expires on March 27, 2022. Moreover, the FDA had already rejected TLANDO thrice till now – in 2016, 2018, and in 2019.
- The company is required to conduct clinical trials, for which it needs to constantly replenish cash stores. Since it does not have revenues from product sales or a licensing deal, the company is currently conducting offerings or borrowing money to meet the needs. This can spiral to huge debt. The bottom-line is that LPCN is technically a microcap company with no products currently on the market, making it inherently risky.
- If the company conducts offerings to raise money (which is usually done at a discount to the current market price) it could further knock down the share price.
- The company faces strong competition from more established rivals with greater financial strength.
- The company has not disclosed executive compensation. However, the annual report mentions a $153,000 decrease attributed to bonus expenses. A company with around 12 employees and $164,990 in revenue in 2019 giving $153,000 as a bonus in itself is a huge red flag.
- The weekly chart shows that the stock is on a downtrend, as it has been forming lower highs and lower lows.
#2 Tyme Technologies Inc. (NASDAQ: TYME)
Company Info: Tyme Technologies Inc is a U.S based clinical-stage biotechnology company. The company is focused on the development and commercialization of targeted cancer therapeutics with a broad range of oncology indications for humans. SM 88, its proprietary drug candidate compound, is a novel compound that has the potential to alter defenses to oxidative stress and increase free radical availability to the cancer cell. The company is currently conducting a Phase II trial in prostate cancer.
Last Close: $1.34
Reason for the hype: TYME’s lead candidate, oral SM-88 was selected for poster presentation at the American Society of Clinical Oncology (ASCO) Virtual 2021 Gastrointestinal Cancers Symposium being held on January 15 – 17, 2021; TYME revealed potential new oral therapy, TYME-19, in the fight against COVID-19 based on its cancer metabolism research program; and Tyme matching SM-88 up against pancreatic cancer in the 2nd and 3rd lines of treatment and if approved, SM-88 will be the first FDA approved product for 3rd-line treatment.
Latest 10-k report: https://sec.report/Document/0001564590-20-026661/
- The company has been reporting losses consistently. Tyme reported a net loss of $22,001,000 for the year ended March 31, 2020 and a net loss of $32,983,000 for the year ended March 31, 2019.
- Tyme has a co-promotion agreement with Eagle Pharmaceuticals, whereby Eagle agreed to provide sales representatives to cover 25% of the Company’s sales force requirements and will receive 15% of the net sales of all SM-88 products in the U.S. during the term of the agreement. TYME would be able to purchase back the Eagle 15% share of the net U.S. sales only by paying $200 million. This deal could cut into their overall future profits.
- According to a Form 4 filing filed with the SEC on December 23, 2020, TYME executive Demurjian Michael sold 20,000 shares of Tyme Technologies at an average price of $1.15. Insiders who sell stock usually points to anticipating some capitulation moment, or locking in profits.
- The company has exceeded the FDIC insurance limit of $250,000 by $26.4 million on March 31, 2020 and $14.0 million on March 31, 2019.
- Tyme did not realize any revenues from operations during the years ended March 31, 2020 and March 31, 2019. The company is not expected to have any revenues until such time as one of its products gets approved for marketing by appropriate regulatory authorities or if the company enters into collaboration or licensing arrangements, none of which is anticipated to occur in the near future.
- The company does not provide quick updates of its progress. Tyme also needs to raise additional capital in the coming year for the clinical trials. In addition, Covid-19 seems to have impacted the speed of enrollment in some trials. All these could create delays in the potential approval for SM-88.
- The company was originally incorporated in Florida as Global Group Enterprises Corp in 2011. In 2014, Tyme changed its jurisdiction of incorporation from Florida to Delaware; changed name from Global Group Enterprises Corp. to Tyme Technologies, Inc., and acquired the current clinical-stage pharmaceutical business. This dramatic shift from being a producer and seller of ultra-premium vodka product to retailers (Global Group Enterprises Corp) to the clinical-stage pharmaceutical business is a potential red flag.
- The weekly chart shows that the stock is currently below the main long-term support area.
#3 BioNano Genomics Inc. (NASDAQ: BNGO)
Company Info: Bionano Genomics Inc is a life sciences instrumentation company in the genome analysis space. It is engaged in the development and marketing of the Saphyr system, a platform for ultra-sensitive and ultra-specific structural variation detection that enables researchers and clinicians to accelerate the search for new diagnostics and therapeutic targets and to streamline the study of changes in chromosomes.
Last Close: $3.08
Reason for the hype: Positive results from the genome analysis of Professor Temple Grandin; NASDAQ delisting action extension; Software Update for Saphyr System (genome mapping platform); customer Praxis Genomics receiving accreditation from College Of American Pathologists; and upcoming earnings on 3/9/2021.
Latest 10-k report: https://sec.report/Document/0001411690-20-000006/
- The Company was almost delisted from NASDAQ. On August 16, 2019, the company received notice from the Nasdaq Stock Market LLC that the Company’s stockholders’ equity as reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 does not satisfy the Nasdaq Capital Market continued listing requirement set forth in Nasdaq Stock Market Rule 5550(b)(1).
- The Company has an accumulated deficit of $102.6 million as of December 31, 2019. BNGO also incurred net losses of $29.8 million and $18.5 million and cash used in operations of $29.5 million and $19.9 million for the years ended December 31, 2019 and 2018,
- BNGO’s revenue decreased by $1.9 million (16%) to $10.1 million for the year ended December 31, 2019, as compared to $12.0 million for the same period in 2018. Yet, the executive compensation for the company’s CEO, CFO, COO, and CCO increased Year Over Year.
- The company’s current surge appears to be driven by momentum trading and possible unconfirmed news like potential acquisitions by another giant company. The bottom line remains that BNGO is a company with decreasing revenues since its inception. In fact, the 9-month revenue for 2020 was just $3.5 million. The expanding costs for both R&D and SGA, and the company’s limited revenue could result in capital raises via equity or debt, leading to further dilution. It may be noted the company had already massively issued stock in 2020, yet are still in need of capital.
- The company’s Saphyr system is only approved for research use and just being adopted outside of initial users.
- As of September 2020, the company has 133 million shares or potential shares if all warrants are converted. Most of these warrents were issued as part of refinancing and fee for service arrangements. Due to the company’s low share price in 2020, most of these newer warrants have a share price well below the IPO warrants – estimated to be below $1.60. This could result in a massive dilution soon.
- The weekly chart shows that the stock has reached near two crucial resistance levels and this could limit its upmove.
#4 Microvision, Inc. (NASDAQ: MVIS)
Company Info: Microvision Inc is a developer of laser beam scanning (LBS) technology that it markets under its brand name PicoP. It has developed its proprietary scanning technology that can be used in products for interactive projection, consumer light detection and ranging (LiDAR), automotive LiDAR, and augmented and mixed reality. Its PicoP scanning technology is based on its patented expertise in systems that includes micro-electrical mechanical systems (MEMS), laser diodes, opto-mechanics, and electronics and how those elements are packaged into a small form factor, low power scanning module that can display, interact, and sense, depending on the needs of the application.
Last Close: $5.21
Reason for the hype: The retail euphoria over the company’s light detection and ranging (LiDAR) IP portfolio amid a broad electric vehicle bubble; and rumors of multiple offers of acquisition from players in the automotive and augmented reality industries.
Latest 10-k report: https://sec.report/Document/0001136261-20-000079/
- The company has an accumulated deficit of $518.9 million from inception through December 31, 2017, a net loss of $27.3 million in 2018, and a net loss of $26.5 million in 2019. This is a clear loss-making company.
- MVIS’s total revenue decreased from $17.6 million in 2018 to $8.88 million in 2019.
- The company had repeatedly and misleadingly hyped 450+ issued patents, without mentioning that ~200 have lapsed or were allowed to expire, leaving only ~250 active patents.
- According to tweets from Hindenburg Research, “The retail investors latched onto the company’s portfolio of 250+ active patents, but an IP attorney we engaged found that only ~10 issued patents even mention LiDAR. Of those, many are oriented toward consumer/non-automotive use.” Hindenburg also alleged that the patents haven’t faced inter partes review (IPR) challenges yet, significantly reducing their value.
- Less than 10% of the company’s shares are owned by institutions and insiders. Nearly 90% of common stock is held by public/retail investors. This is quite unusual and generally points to the Management’s lack of faith.
- The company has not yet shown automotive LiDAR. Even if the company has it at the specifications claimed, it wouldn’t be the smallest, or the best among the various competitors like Luminar, Innoviz, AEye, and Aeva. The pricing is also yet to be determined.
- MVIS describes cutting edge LBS technology (LBS mems scanner), yet no deals have materialized, even after receiving confirmation about the Hololens 2.
- Bigwigs like Apple, Google’s Waymo, and TSLA have already been working on LiDAR technology for years for developing and enhancing autonomous driving technology. It is unclear how MVIS would stand out among them.
- Over the last decade, the company’s total share count has increased from approximately 12 million to 143.7 million, reflecting more than 90% dilution to the initial shareholder base.
#5 Alpine 4 Technologies Ltd (OTCMKTS: ALPP)
Company Info: Alpine 4 Technologies Ltd engages in the provision of software, automotive technologies, electronics manufacturing, energy services, and fabrication technologies and industries. The company segments include Quality Circuit Assembly (QCA) and American Precision Fabricators (APF). It derives maximum wealth from the QCA segment. Its products include 6th Sense Auto that provides sales team management information and Brake Active Technology that helps involved in collision and injury.
Last Close: $2.78
Reason for the hype: The news of two drone subsidiaries – EMS services and Delivery; acquisition of Vayu US Inc; positive changes made to the Federal Aviation Administrations’ (FAA) regulations surrounding night flying and flying over people; acquisition of Impossible Aerospace Corporation; plans to list in NASDAQ; and the blacklisting of major Chinese player DJI opening up opportunities for American drone manufacturers like ALPP.
Latest 10-k report: https://sec.report/Document/0001445866-20-000782/
- The company is not listed in major exchanges, signifying that it does not meet the rigorous standards required for listing.
- The company has incurred net losses of $31.75 million since inception through December 31, 2019. This is clearly a loss-making company. Yet, the compensation for COO increased Year over year.
- In December 2018, ALPP shut down the operations of its VWES subsidiary. In February 2019, VWES filed for Chapter 7 bankruptcy and as of December 31, 2019, VWES’ bankruptcy was completed.
- DJI represents 70-80% of the commercial drone market. The US Department of Commerce’s decision doesn’t ban DJI from selling its products, which include popular drones like the DJI Mini 2, in the US. The ban only restricts DJI’s access to US technology. The incoming Joe Biden administration is anticipated to take a less confrontational attitude towards the Chinese technology industry, in which case DJI could retain its position as the market leader. At worst, DJI could do a redesign and still sell their products. The current opportunity for ALPP could end up as a short-term window.
As you can see, there are quite a few red flags in these hyped penny stocks. We would advise investor caution before entering into such high-risk ventures. Remember to think before you trade!
— Trades of the Day Research Team