This High Risk / High Reward Stock Has Triple Digit Upside Potential

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: Metacrine Inc. (NASDAQ: MTCR)

Today’s penny stock pick is the clinical-stage biopharmaceutical company, Metacrine Inc. (NASDAQ: MTCR).

Metacrine Inc. focuses on discovering and developing therapies for patients with liver and gastrointestinal diseases.

It is developing MET409 that has completed Phase 1b proof-of-concept clinical trial for the treatment of patients with non-alcoholic steatohepatitis (NASH); and is in Phase 2a clinical trial in combination with empagliflozin for the treatment of patients with type 2 diabetes mellitus and NASH.

The company also develops MET642, which is in Phase 2a clinical trial for the treatment of non-alcoholic steatohepatitis patients.

Website:  https://www.metacrine.com/

Latest 10-k report: https://sec.report/Document/0001564590-21-014178/

Analyst Consensus: According to TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for MTCR in the last 3 months, the stock has a ‘Moderate Buy’ rating and a price target of $15.00, which is a 303.23% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• The news about the company completing enrollment for its Phase 2a trial evaluating MET642, an optimized farnesoid X receptor (FXR) agonist, in patients with non-alcoholic steatohepatitis (NASH).
• The FDA’s rejection of the drug obeticholic acid, or OCA, of MTCR’s competitor, Intercept Pharmaceuticals (ICPT). OCA was a method of reversing or stabilizing liver damage due to NASH. Investors of MTCR are now optimistic that MTCR has a more attractive product with a better safety profile than ICPT´s OCA. It may be noted that currently, there is no approved treatment for the NASH disease – a multi-billion dollar market.
• Strong Insider Ownership

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. The stock is also trading above its 50-day SMA, indicating that the bulls have currently gained control.

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and ADX line are above the -DI line, and the ADX line is moving 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 Bullish Stoch: The chart shows that the %K line of the stochastic is above the %D line, indicating possible bullishness.

#5 Above Support Area: The weekly chart shows that the stock is trading above a resistance-turned-support area, which is marked as a pink color dotted line. This is a possible bullish indication.

#6 Oversold RSI: In the weekly chart, the RSI is currently moving higher after reaching oversold levels, indicating that a reversal may be imminent.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for MTCR is above the price of $3.85.

Target Prices: Our target prices are $4.50 and $7.00.

Stop Loss: To limit risk, place a stop loss at $3.45. Note that the stop loss is on a closing basis.

Our target potential upside is 17% to 82%.

For a risk of $0.40, our first target reward is $0.65, and the second target reward is $3.15. This is a nearly 1:2 and 1:8 risk-reward trade.

In other words, this trade offers 2x to 8x more potential upside than downside.

Potential Risks / Red Flags:

1. The company has a very limited operating history. MTCR had incurred net losses since its inception. For the years ended December 31, 2020, and 2019, the company’s net losses were $37.3 million and $28.9 million, respectively. As of December 31, 2020, the company had an accumulated deficit of $120.7 million.
   

   MTCR – Annual Report – Results of Operations

2. MTCR is heavily dependent on the success of its FXR program, which consists of product candidates MET409 and MET642, each of which is in early-stage clinical development. It is possible that the company may not be able to successfully obtain regulatory or marketing approval or successfully commercialize the products.
3. The price could significantly surge higher or lower depending on the NASH data scheduled to be reported in the coming weeks. Interim data from the Phase 2a trial of MET642 in patients with NASH now expected early in the fourth quarter of 2021, and the topline results from a Phase 2a trial of MET409 in combination with empagliflozin in patients with NASH and type 2 diabetes on track to be reported in the fourth quarter of 2021.
4. Despite being a loss-making company, the executives are being paid substantial compensation, as per DEF 14A, Definitive Proxy Statement.
   

   MTCR – Executive Compensation

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.