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: Surgalign Holdings Inc. (NASDAQ: SRGA)
Today’s penny stock pick is the medical technology company, Surgalign Holdings Inc. (NASDAQ: SRGA).
Surgalign Holdings Inc. develops, manufactures, distributes, and markets spine implants worldwide. It offers products for thoracolumbar procedures, including Streamline TL Spinal Fixation system, Streamline MIS Spinal Fixation system, interbody fusion devices, CervAlign ACP system, Fortilink-C IBF system, and Streamline OCT system.
The company also provides motion preservation systems, HPS 2.0 Universal Fixation system, and SImmetry SI Joint Fusion system. In addition, it develops Augmented Reality and Artificial Intelligence digital surgery platform to enable digital spine surgery.
The company has a collaboration with Inteneural Networks for clinical neurosciences; and a strategic agreement with Exactech, Inc. for the development and supply of biologic bone substitutes.
Website: https://www.surgalign.com/
Latest 10-k report: https://sec.report/Document/0001564590-21-013644/
Analyst Consensus: As per TipRanks Analytics, 6 Wall Street analysts are offering 12-month price targets for Surgalign Holdings in the last 3 months. The average price target for SRGA is $3.42, which is 194.83% Upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The news about the United States Patent and Trademark Office (USPTO) issuing a patent covering a machine learning system for automated segmentation of a three-dimensional bony structure in a medical image. The granted patent expands and further strengthens the company’s HOLO AI technology portfolio.
- The company reporting an increase in revenue for the Second Quarter of 2021.
- Multiple analysts reiterating buy ratings for SRGA during the past two weeks.
Source: TipRanks.com
- The news of the company’s CEO buying up significant amount shares of SRGA. Corporate Insiders had bought shares worth $1.1M in the last 3 months.
SRGA – Insider Transactions | Source: TipRanks.com
- Hedge Funds increasing holdings by 2.8M shares last quarter, as per TipRanks Analytics.
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 purple 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 with very high volume, indicating possible bullishness.
SRGA – Daily Chart
#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI and the ADX lines are above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.
#3 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
#4 %K above %D: The daily chart shows that the %K line (blue color) is currently above the %D line (orange color) in the stochastic. This is a bullish sign.
#5 High Volume: The weekly chart shows that the stock is currently moving higher with historic high volume. This is a bullish sign.
SRGA – Weekly Chart
#6 Oversold RSI: The weekly chart shows that the RSI is moving higher from oversold levels. This typically points to an upcoming trend reversal.
#7 Bullish Stoch: In the weekly chart as well, the %K line of the stochastic is above the %D line. It is also moving higher from oversold levels. All these are positive indications.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for SRGA is if it closes above the near-term weekly resistance level. This translates to a price of above $1.55. However, those with a higher risk appetite can purchase half the intended quantity of shares of SRGA above the price of $1.30.
Target Prices: Our target prices are $2.50 and $3.50.
Stop Loss: To limit risk, place a stop loss at $0.80 (for entry near $1.30) and $1.05 (for entry near $1.55). Note that the stop loss is on a closing basis.
Our target potential upside is 61% to 169%.
- Entry near $1.30: For a risk of $0.50, our first target reward is $1.20, and the second target reward is $2.20. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry near $1.55: For a risk of $0.50, our first target reward is $0.95, and the second target reward is $1.95. 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 a history of net losses. For the years ended December 31, 2020, 2019, and 2018, SRGA incurred net losses from continuing operations of $194.2 million, $248.8 million, and $49.6, respectively. As of December 31, 2020, the company had an accumulated deficit of $485.0 million.
SRGA – Consolidated Statements of Comprehensive Loss
- The company has ongoing legal actions and litigations. This includes the OEM Purchase Agreement Working Capital Dispute, TSM litigation, patent infringement lawsuit by LifeNet, class action complaint was filed by Patricia Lowry, and three derivative lawsuits consolidated into the first-filed Summers Action.
- Despite reporting losses consistently, the company executives are drawing significant compensation.
SRGA – Executive Compensation
- The company has a history of a name change. Surgalign Holdings, Inc. was formerly known as RTI Surgical Holdings, Inc.
- There is an ongoing investigation by U.S. Securities and Exchange Commission related to the periods 2014 through 2016.
- On January 28, 2020, RTI, as the predecessor to the Company, received an Opportunity to Show Cause letter from the United States Environmental Protection Agency (EPA). The letter alleged potential violations of hazardous waste regulations at the Company’s Alachua, Florida facilities based on November 20, 2019, inspection conducted by EPA.
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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