Warning: Top 5 Hyped Penny Stocks with Red Flags

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	BioLineRx ADR	NASDAQ: BLRX	$2.85
2	High Tide	CVE: HITI, OTCMKTS: HITIF	$0.55
3	Tonix Pharmaceuticals Holding Corp	NASDAQ: TNXP	$0.97
4	Ceragon Networks Ltd	NASDAQ: CRNT	$4.56
5	Evogene Ltd	NASDAQ: EVGN	$6.42

 

#1 BioLineRx ADR (NASDAQ: BLRX)

Company Info: BioLine Rx Ltd, incorporated in the state of Israel, is a clinical-stage biopharmaceutical development company with a strategic focus on oncology. Its development and commercialization pipeline consists of two clinical-stage therapeutic candidates – Motixafortide (BL-8040), a novel peptide for the treatment of solid tumors, hematological malignancies, and stem cell mobilization, and AGI-134, an immuno-oncology agent in development for solid tumors. In addition, it has an off- strategy, a legacy therapeutic product called BL-5010 for the treatment of skin lesions.

Website: www.biolinerx.com

Last Close: $2.85

Reason for the hype: Company announced that it successfully closed the bought deal offering of its American Depository Shares (ADS) worth as much as $34.5 million; the news that the company completed patient enrollment in a Phase 3 study of motixafortide, a synthetic peptide, with key GENESIS secondary endpoints expected by mid-2021; and H.C. Wainwright reiterating a Buy rating on Biolinerx.

Latest 10-k report: (Form 20-F) https://sec.report/Document/0001178913-20-000790/

Red Flags:

1. The company has been reporting significant losses consistently. BLRX reported net losses of $24.4 million in 2017, $23.0 million in 2018, and $25.4 million in 2019. As of December 31, 2019, the company had an accumulated deficit of $248 million.
2. BLRX did not record any revenues for the years ended December 31, 2017, 2018, and 2019.
3. On checking the company’s price action, it appears that any rise is almost immediately followed by an equal or worse crash, within hours.
4. The company has been doing offering for low prices, resulting in shares dilution. BLRX had recently closed an underwritten offering of 14,375,000 American Depositary Shares (ADSs) of the Company, inclusive of the full exercise by Wainwright of its option to purchase 1,875,000 additional ADSs, at a price to the public of $2.40 per ADS. Each ADS represents fifteen ordinary shares, par value NIS 0.10 per share, of the Company. The gross proceeds to BioLineRx are approximately $34.5 million. Management diluting shares at a low price when funding was not yet necessary, and in spite of positive DSMC recommendation, is a red flag.
5. An upside may be likely with an encouraging Motixafortide’s Phase 3. However, NDA acceptance is not guaranteed. In case Motixafortide’s Phase 3 results are not as promising as expected, or if its NDA is not accepted, substantial share value loss could occur.
6. The company’s management is headed since 2016 by Philip Serlin, who doesn’t have a background in biotechnology. Serlin had previously served in Kayote Networks, a provider of advanced VoIP peering solutions, Tescom Software Systems Testing Ltd, and at the SEC.
7. The monthly chart of BLRX shows that the stock has been forming lower lows and lower highs for a while.

#2 High Tide Inc. (CVE: HITI| OTCMKTS: HITIF)

Company Info: High Tide Inc is a retail-focused cannabis company enhanced by the manufacturing and distribution of consumption accessories. The Company is the largest Canadian retailer of recreational cannabis and features the Canna Cabana, KushBar, Meta Cannabis Co., Meta Cannabis Supply Co., and NewLeaf Cannabis banners. It has e-commerce platforms Grasscity.com and CBDcity.com. The company also owns accessory wholesaler Valiant Distribution.

Website: https://hightideinc.com

Last Close: $0.55

Reason for the hype: Acquisition of E-commerce retailer Smoke Cartel; conversion of $7 Million of Debentures into Equity; and Canna Cabana retail store, located in Calgary’s Centre City East Village, commencing the selling of recreational cannabis products for adult use.

Latest 10-k report: Not Available

Red Flags:

1. High Tide has not filed any forms with the SEC apart from initial company registration.
2. The company is not listed in major exchanges like NYSE or NASDAQ, indicating that it does not meet the rigorous standards required for listing.
3. As per the company’s website, Loss from operations for the 2019 fiscal year was $19,874 (2018 – $3,734 loss), with negative operating cash flows of $14,833 (2018 – outflows of $8,779).
4. The company had reported a 184% increase in revenue from nine months ended July 31, 2020, when compared to nine months ended July 31, 2019. However, despite the increased revenue, the company reported a loss for the same period.
5. HITI has plans to expand in the USA, but until federal decriminalization, this may not be an easy feat.
6. There are rumors that HITIF would be doing a reverse split to get uplisted to the NASDAQ. This could hurt the share price.
7. HITI’s weekly chart shows that a high-volume bearish candle was formed recently.

#3 Tonix Pharmaceuticals Holding Corp (NASDAQ: TNXP)

Company Info: Tonix Pharmaceuticals Holding Corp is a clinical-stage pharmaceutical company. The company is engaged in discovering, licensing, acquiring, and developing drugs and biologics to treat and prevent human disease and alleviate suffering. Its portfolio includes biologics to prevent infectious diseases and small molecules and biologics to treat pain, psychiatric and addiction conditions. While the company is also developing a potential vaccine to protect against the novel coronavirus disease. Its main products are used for treating fibromyalgia, or FM, and posttraumatic stress disorder, or PTSD.

Website: www.tonixpharma.com

Last Close: $0.97

Reason for the hype: upcoming results on TNX-1800, a potential COVID-19 vaccine; day traders touting stock in message boards; and upcoming update on the Fibromyalgia trials.

Latest 10-k report: https://sec.report/Document/0001387131-20-003189/

Red Flags:

1. The company reported a net loss of $28.6 million for the year ended December 31, 2019, compared to a net loss of $26.1 million for the year ended December 31, 2018. This trend of increasing losses is a worrying sign.
2. TNXP has not generated any revenues to date, and has incurred losses in each year of its operations. Yet, the CEO draws more than a million as compensation per year, while the CFO and CMO draw more than half a million as their yearly compensations. This is a red flag.
3. The company had received notice from the Listing Qualifications Department of The NASDAQ Stock Market for lack of compliance with the NASDAQ Listing Rule 5450(b)(1)(A) and faced the risk of delisting.
4. TNXP had a $40M Common Stock Offering Priced at-the-Market Under Nasdaq Rules in January. Authorizing new shares could result in depressed share prices
5. The stock was touted by Robinhood message boards and Reddit platforms, resulting in fueling its upmove. Once the stock stops getting promoted, a price decline could happen.
6. The news about the stock’s covid vaccine and Fibromyalgia trials are boosting the stock price, even though the company has zero revenue and has been posting losses YoY. In case the two catalysts do not meet expectations, the stock could see a massive sell-off.
7. The monthly chart of TNXP shows that the stock has been forming lower highs and lower lows. It is also near a supply area.

#4 Ceragon Networks Ltd (NASDAQ: CRNT)

Company Info: Ceragon Networks Ltd offers wireless backhaul solutions. Its products comprise of FibeAir IP-20 Platform, FibeAir IP-20 Assured Platform, and Network Management. The company provides its services to wireless service providers, public safety organizations, government agencies, and utility companies. The company’s FibeAir IP-20 platform offers flexibility in choosing all-outdoor, split-mount, and all-indoor configurations to suit any deployment scenario. Its products include short haul-access, short haul-aggregation, small cells, long haul, and enterprise access. Geographically, it derives majority revenue from India and also has a presence in North America, Europe, Africa, Asia-Pacific, and the Middle East, and Latin America.

Website: www.ceragon.com

Last Close: $4.56

Reason for the hype: hype in twitter and social media sites touting Ceragon as a 5g play; ban of Huawei hardware from 5g networks and reduction in 4g networks; and upcoming earnings on Feb. 8.

Latest 10-k report: https://sec.report/Document/0001178913-20-000976/

Red Flags:

1. In 2019, the Company had $2.3 million in net loss as compared with net profit of $23.0 million in 2018. Yet, there was a $0.4 million in salary and related expenses.
2. A significant portion of the company’s business concentrates in certain countries. Such concentration has negatively affected the company’s business, financial condition, and results of operations, as the amount of business coming from the customers in these regions has decreased in recent periods.
3. On January 5, 2015, a class action was filed against the Company, its CEO, and its directors as defendants with the District Court of Tel-Aviv (Economic Department), on behalf of holders of ordinary shares, including those who purchased shares during the period following the Company’s follow-on public offering in July 2014; alleging breaches of duties by the Company and its management on account of false and misleading statements in the Company’s SEC filings and public statements, during the period between July and October 2014. This is still ongoing.
4. During 2019, the company incurred losses in the amount of $2.4 million as a result of exchange rate fluctuations that have not been fully offset by the company’s hedging policy. This points to incompetent management.
5. CRNT’s wireless backhaul business had consistently lost market share to fiber competition. For 5G, improved technology does not guarantee success, as new competition is expected, from the likes of Jeff Bezos (Kuiper) and Elon Musk (Starlink). In addition, the new 3GPP technology Integrated Access Backhaul (IAB) will give large companies like ERIC and NOK an advantage over CRNT.
6. The weekly chart of CRNT is as shown below. It shows that the stock’s trend could turn bullish above around $6.30.

#5 Evogene Ltd. (NASDAQ: EVGN)

Company Info: Evogene Ltd is a computational biology company targeting to revolutionize product development for life-science based industries, including human health, agriculture, and industrial applications. The company established its technology, the Computational Predictive Biology (CPB) platform. The CPB platform is designed to computationally discover and develop life-science products based on microbes, small molecules, and genetic elements as the core components for such products. It holds a number of subsidiaries utilizing the CPB platform, for the development of human microbiome-based therapeutics, medical cannabis, ag-biologicals, ag-chemicals, seed traits, and ag-solutions for castor oil production.

Website:  www.evogene.com

Last Close: $6.42

Reason for the hype: EVGN’s subsidiary Biomica announced advanced to large-scale production of BMC128, its Live Bacterial Product candidate consortium; Cantor Fitzgerald initiated coverage for EVGN; Canonic receiving approval from the Israeli Medical Cannabis Agency for the propagation of medical cannabis seedlings; news of EVGN being selected in top 10 of presenting abstract at Crohn’s & Colitis Congress; and phase advancement of bio-stimulant LAV211, towards an anticipated commercial launch in 2022.

Latest 10-k report: https://sec.report/Document/0001178913-20-001229/

Red Flags:

1. The company has a history of losses, and incurred operating losses of $21.1 million, $20.0 million, and $21.9 million for the years ended December 31, 2019, 2018, and 2017. Operating loss for the third quarter of 2020 was approximately $5.6 million, in comparison to approximately $4.9 million in the third quarter of 2019; while the loss for the third quarter of 2020 was approximately $5.4 million, in comparison to a loss of approximately $4.5 million during the third quarter of 2019. The increase in losses year over year is a worrying sign.
2. EVGN’s total revenues decreased by $0.9 million, or 56.9%, to $0.8 million for the year ended December 31, 2019, from $1.7 million for the year ended December 31, 2018. Lavie Bio has not commenced commercialization and has not yet generated any revenues.
3. The company is a leading developer in Crispr technology and is supported by the Israel government’s grants. However, the terms of these grants may require the company to satisfy specified conditions in order to manufacture products and transfer technologies supported by such grants outside of Israel. In addition, in some circumstances, the company may be required to pay penalties in addition to repaying the grants. This could impact the overall profitability.
4. Cathie Wood (Ark investment) buying into the stock has triggered the current momentum. Any decision to liquidate the stock could adversely impact the price.
5. The company recently raised a total of $22 million in equity. On September 3, 2020, the company $10 million in equity, and on November 4, 2020, raised an additional $12 million in equity. Both offerings were to leading institutional investors. In case the institution decides to sell, the stock will often sell off, impacting individual shareholders.
6. The company has increasing cash burn. The company burnt through US$18m last year, which was nearly 22% of the company’s market value. Evogene has not yet produced significant amounts of operating revenue as well. The company had to sell shares to fund another year’s growth and if this continues, there would be a fairly costly dilution.
7. The chart of EVGN is shown below.

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!

Happy Trading!

— Trades of the Day Research Team