The allure of penny stocks lies in their potential to deliver massive gains in a short period. 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.
Although the potential reward may make it worthwhile, choosing the right penny stock is a daunting task. Nevertheless, we’ll do our best to identify short-term trade opportunities in this exciting space.
With this in mind, we’re starting a new series called “Penny Stock of the Day”. These ideas are geared for traders with a 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: Adamis Pharmaceuticals Corp (NASDAQ: ADMP)
Today’s penny stock pick is the specialty biopharmaceutical company, Adamis Pharmaceuticals Corp (NASDAQ: ADMP).
Adamis Pharmaceuticals Corporation develops and commercializes products in various therapeutic areas, including respiratory disease, allergy, and opioid overdose.
The company’s product candidates comprise Symjepi Injection pre-filled syringe (PFS) for use in the emergency treatment of acute allergic reactions, including anaphylaxis; dry powder inhaler products consisting of fluticasone for the treatment of asthma; beclomethasone, a metered dose inhaler product for asthma; and naloxone injection product candidates for the treatment of opioid overdose.
ADMP also offers APC400, a tempol gel use of reducing radiation dermatitis in patients undergoing treatment for cancer; and APC410 for the treatment of respiratory diseases, including asthma, respiratory syncytial virus, influenza, and COVID-19.
In addition, the company provides corticosteroids, hormone replacement therapies, hospital outsourcing products, injectables, urological preparations, topical compounds for pain, and men’s and women’s health products; and veterinary pharmaceutical products for animals.
Website: www.adamispharmaceuticals.com
Latest 10-k report: https://sec.report/Document/0001387131-21-004529/
Analyst Consensus: According to TipRanks analytics, the company was recently given a ‘Hold’ rating by Raymond James analyst, Elliot Wilbur.
Potential Catalysts / Reasons for the Hype:
- An overall positive insider sentiment on the stock, based on four informative insider transactions by four unique insiders from the last six months.
ADMP – Insider Transactions
- News of the company’s upcoming adaptive, randomized, double-blind, placebo-controlled study to examine the Effects of Tempol in subjects with COVID-19 infection. The estimated Study start date is August 25, 2021. If the medication is as effective and works as intended, then mass production is expected to commence immediately.
- A positive science magazine article about Tempol.
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 of a Symmetrical Triangle pattern. This is a continuation pattern characterized by two converging trend lines connecting a series of sequential peaks and troughs. This pattern is marked on the chart as pink color lines. A breakout from a symmetrical triangle pattern usually signifies the start of a bullish move.
ADMP – Daily Chart
#2 Price above MAs: The price is currently above the short-term moving average of 50-day SMA as well as the longer-term moving average of 200-day SMA. This usually implies a possible bullish bias for the stock.
#3 Bullish MACD: The MACD line is currently above the MACD signal line, indicating possible bullishness.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because the (+DI) line and the ADX lines are greater than the (-DI) line, and the ADX line has currently started to move up from below the (-DI) and (+DI) lines.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates possible bullishness.
#6 Downtrend Broken: The weekly chart shows that the stock had recently broken out of a downtrend. This is marked as a purple color line. The stock is also trading above a long-term support area and is also above its 50-week SMA. All these are possible bullish signs.
ADMP – Weekly Chart
#5 MACD above Signal Line: In the weekly chart as well, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ADMP is above the near-term resistance area, which translates to a price of $1.28.
Target Prices: Our first target price is $2.00. If it breaks above that level, the next target price is $3.00.
Stop Loss: To limit risk, place a stop loss at $0.89. Note that the stop loss is on a closing basis.
Our target potential upside is 56% to 134%.
For a risk of $0.39, our first target reward is $0.72, and the second target reward is $1.72. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company has been a loss-making company. ADMP had incurred net losses of approximately $49.4 million for the year ended December 31, 2020, and a net loss of approximately $27.5 million for the year ended December 31, 2019. From inception through December 31, 2020, the company has an accumulated deficit of approximately $229.9 million.
ADMP – Net Loss
- Tempol is being considered by the National Institutes of Health (NIH) as a potential new antiviral drug for COVID-19. However, there are many other potential covid antivirals much further along, like Palisades Therapeutics’ PT150; and Merck’s Molnupiravir.
- The company had recently received a subpoena from the US Attorney’s Southern District of N.Y. which has delayed their SEC quarterly filings indefinitely and could have a significant adverse material impact.
- On September 21, 2018, Nephron Pharmaceuticals Corporation, Nephron S.C., Inc., and Nephron Sterile Compounding Center LLC had filed a lawsuit in the United States District Court for the Middle District of Florida, Orlando Division, alleging claims against the company’s wholly-owned subsidiary USC —and a USC employee who previously was an employee of Nephron, alleging generally misappropriation of Nephron’s trade secrets. The company had to make a settlement and has to pay Nephron an amount equal to $7,900,000 following the execution of the settlement agreement.
- Despite being a loss-making company, ADMP executives were paid significant compensation year after year.
ADMP – Executive Compensation
- On September 29, 2020, the Company had received a notice from the Listing Qualifications Department of The Nasdaq Stock Market. Nasdaq had notified the Company that for 30 consecutive business days, the closing bid price of the Company’s common stock was below $1.00 per share, which was the minimum required closing bid price for continued listing on the Nasdaq Capital Market pursuant to Marketplace Rule 5550(a)(2).
- The company has historically relied upon sales of its equity or debt securities to help fund its operations. As per the annual report, the company currently has no available balance in its credit facility or committed sources of capital.
- The last discounted offering was structured back in January for $1.11/share and had raised nearly $45 million, diluting existing shareholder value.
- The company has a significant cash burn. Net cash used in operating activities for the years ended December 31, 2020, and 2019, was approximately $20.9 million and $19.9 million, respectively.
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
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