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: MEI Pharma Inc. (NASDAQ: MEIP)
Today’s penny stock pick is the late-stage pharmaceutical company, MEI Pharma Inc. (NASDAQ: MEIP).
MEI Pharma Inc. focuses on the development and commercialization of various therapies for the treatment of cancer. The company develops Zandelisib, an oral phosphatidylinositol 3-kinase delta inhibitor that is in Phase III clinical trial for the treatment of patients with relapsed/refractory follicular lymphoma, as well as in Phase Ib multi-arm trial to treat B-cell malignancies; and Voruciclib, an oral cyclin-dependent kinase 9 inhibitor, which is in Phase Ib clinical trial for acute myeloid leukemia and B-cell malignancies.
It also develops ME-344, a mitochondrial inhibitor targeting the oxidative phosphorylation complex that is in Phase I clinical trial for the treatment of human epidermal growth factor receptor 2 negative breast cancer; and Pracinostat, an oral available histone deacetylase inhibitor, which is in Phase II clinical trial to treat patients with myelodysplastic syndrome. MEI Pharma, Inc. has a license, development, and commercialization agreement with Kyowa Kirin Company; a clinical collaboration with BeiGene, Ltd.; a license, development, manufacturing, and commercialization agreement with Helsinn Healthcare SA; and a license agreement with Presage Biosciences, Inc.
Website: www.meipharma.com
Latest 10-k report: https://sec.report/Document/0000950170-21-001655/
Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for MEIP in the last 3 months, the stock has an average price target of $11.00 and an average rating of ‘Strong Buy’. The average price target is a 275.43% change from the last price of $2.93.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- News that Zandelisib, the Oral PI3K delta inhibitor’s top line data from the TIDAL study, a Phase 2 trial in the treatment of follicular lymphoma, is expected during the fourth quarter of this year.
- Upcoming clinical update for vorociclib, an oral CDK9 inhibitor under investigation in a Phase 1 trial as a treatment for patients with acute myeloid leukemia and B-cell malignancies.
- Positive results were reported in Phase 1 testing of ME-344, a mitochondrial inhibitor, and possible treatment of solid tumors.
- Multiple analysts reiterating buy rating for the stock.
Recent Analyst Ratings | Source: TipRanks.com
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 with high volume, indicating possible bullishness. The stock is also trading above its 50-day SMA, indicating that the bulls are slowly gaining control.
MEIP – 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 moving higher from below the +DI and -DI lines.
#3 Bullish Stoch: The %K line of the stochastic is above the %D line in the daily chart and is also moving up from oversold levels, indicating bullishness.
#4 Bullish RSI: The RSI is above 50 and moving higher, indicating the strength of the current upmove.
#5 Above Support Area: The weekly chart shows that the stock is trading above a strong support area, which is marked as a green color dotted line. This is a possible bullish indication.
MEIP – Weekly Chart
#6 Double Bottom Pattern: The weekly chart shows that the stock is currently forming a double bottom pattern. This is marked in pink color. A double bottom pattern is a strong bullish pattern and a breakout from it would indicate that the stock could surge higher.
#6 MACD above Signal Line: In the weekly chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of MEIP above the price of $3.04. The remaining shares can be purchased once the stock breaks out of the double bottom pattern, at around $4.35.
Target Prices: Our target prices are $4.35 and $7.00.
Stop Loss: To limit risk, place a stop loss at $2.35 (for entry near $3.04) and $3.00 (for entry near $4.35). Note that the stop loss is on a closing basis.
Our target potential upside is 43% to 130%.
- Entry near $3.04: For a risk of $0.69, our first target reward is $1.31, and the second target reward is $3.96. This is a nearly 1:2 and 1:6 risk-reward trade.
- Entry near $4.35: For a risk of $1.35, our target reward (TP#2) is $2.65. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers 2x to 6x more potential upside than downside.
Potential Risks / Red Flags:
- The company had incurred net losses of $327.8 million from its inception through June 30, 2021, including a net loss of $68.7 million (excluding $18.1 million of non-cash gain) for the year ended June 30, 2021.
MEIP – Consolidated Statement of Operations
- Despite being a loss-making company, the company executives are being paid significant compensation.
MEIP – Summary Compensation
- The company was formerly known as Marshall Edwards, Inc. and changed its name to MEI Pharma, Inc. in July 2012.
- A class action lawsuit was filed against the company, alleging that MEIP made false and misleading statements relating to pracinostat. Another putative stockholder derivative action was filed alleging claims for breach of fiduciary duty, unjust enrichment, corporate waste, and contribution.
- The company requires significant cash to continue the development of its drug candidates. This may be accomplished either through the sale of equity securities, debt financing, license agreements, or entry into strategic partnerships. In case the company issues additional shares, it could result in dilution.
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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