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: Acasti Pharma Inc. (NASDAQ: ACST)
Today’s penny stock pick is the biopharmaceutical company, Acasti Pharma Inc. (NASDAQ: ACST).
Acasti Pharma Inc. engages in the development and commercialization of pharmaceutical products for cardiovascular diseases. It is evaluating strategic partnerships for the clinical development of CaPre, an omega-3 phospholipid therapeutic to treat patients with hypertriglyceridemia. The Company is developing CaPre in Phase 3 clinical program in patients with severe hypertriglyceridemia.
Website: www.acastipharma.com
Latest 10-k report: https://sec.report/Document/0001171843-21-004462/
Analyst Consensus: There has been no analyst forecasts on the stock since the past six months. As per TipRanks analytics, H.C. Wainwright analyst had reiterated a buy rating for ACST, with a $3.00 price target in August 2020. However, both Leede Jones Gable and Aegis Capital had downgraded the stock in September 2020, with price targets of $0.12 and $0.25 respectively.
Potential Catalysts / Reasons for the Hype:
- The news about the company entering into a definitive agreement to acquire Grace Therapeutics, Inc.
On completion of the transaction, Acasti will acquire Grace’s pipeline of drug candidates addressing critical unmet medical needs with the potential to deliver significant value to patients and providers. The announcement notes the following points.
“Grace provides Acasti with a pipeline of rare and orphan disease programs, including 3 clinical stage assets that have received Orphan Drug Designation from the FDA. Expects lead asset to complete PK Bridging Study in early 2022, with potential to advance directly into a Phase 3 clinical safety trial for Subarachnoid Hemorrhage. Combination creates a unique rare disease company with innovative drug delivery technologies, and is expected to have ~$64M in cash at closing to advance lead clinical assets.”
- The company insider making an Informative Buy in June 2021.
- Rumors of a Covid-19 Vaccine Additive in the company’s pipeline.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern Breakout: The daily chart shows that the stock was forming a falling wedge pattern for the past several weeks. These are marked as orange color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern, indicating possible bullishness.
ACST – 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 has started to move higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above both 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 possible bullishness.
#5 Bullish Stoch: The %K line is above the %D line of the stochastic, and is also moving higher from oversold levels, indicating possible bullishness.
#6 Consolidation Area: The weekly chart shows that the stock has currently formed a consolidation area, and is trading within those levels. This is marked as a pink color rectangle. The stock is currently moving higher from the lower end of the consolidation area. The stock is also trading above its 50-week SMA, indicating that the bulls are currently gaining control. A breakout from a consolidation area would indicate that the stock would move higher.
ACST – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ACST is above the nearest resistance area, which translates to a price of $0.60.
Target Prices: Our target prices are $1.00 and $1.50.
Stop Loss: To limit risk, place a stop loss at $0.38. Note that the stop loss is on a closing basis.
Our target potential upside is 67% to 150%.
For a risk of $0.22, our first target reward is $0.40, and the second target reward is $0.90. 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:
- ACST has been a loss-making company. For the third quarter of fiscal 2021, Acasti Pharma reported a $3.2 million net loss, as well as a $2 million loss from operations. The company had a net loss of $19,678,000 or $0.17 per share for the year ended March 31, 2021, and a net loss of $25,513,000 or $0.30 per share for the year ended March 31, 2020.
ACST – Net Loss
- Prior to the merger announcement, ACST only had one treatment (CaPre) and it failed two Phase 3 trials. Consequently, the company could not file for an NDA in the US nor conduct additional trials for the program.
- The company has very low insider ownership of 2.61%.
- Despite being a loss-making company, the company’s executives are receiving good compensation.
ACST – Executive Compensation
- On May 11, 2021, Acasti received written notice from the Nasdaq Listing Qualifications Department notifying Acasti that based upon Acasti’s non-compliance with the $1.00 bid price requirement set forth in Nasdaq Listing Rule 5550(a). Acasti common shares are subject to delisting unless Acasti regains compliance.
- Acasti is currently under investigation concerning potential violations of the federal securities laws and/or breaches of fiduciary duties relating to its merger with Grace Therapeutics Inc. Rigrodsky Law, P.A. announced that it is investigating Acasti regarding possible breaches of fiduciary duties and other violations of law related to Acasti’s agreement to merge with Grace Therapeutics Inc.
- As per the voting Material sent out to stockholders, paragraph 8 mentions reverse split of 1-6 to 1-8. The company may need to do a reverse split to stay in compliance with the Nasdaq rules.
- The bottomline is that even though the stock could have significant potential due to the Grace merger, it is surrounded by a mist of uncertainties. There has been no announcement regarding the start of the delisting processes (in which case, the stock price would slide lower), nor has there been an announcement of another extension (in which case, the stock could surge again). This would be a good choice only if you have a high risk tolerance.
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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