This High Risk / High Reward Stock Just Broke Out

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: Quotient Ltd (NASDAQ: QTNT)

Today’s penny stock pick is the commercial-stage diagnostics company, Quotient Ltd (NASDAQ: QTNT).

Quotient Limited develops, manufactures, commercializes, and sells products for the global transfusion diagnostics market in the United States, France, Japan, and internationally. The company is developing MosaiQ, a proprietary technology platform, which provides tests for immunohematology, serological disease screening, and molecular disease screening.

Its conventional reagent products for blood grouping include antisera products that are used to identify blood group antigens; reagent red blood cells, which enable the identification of blood group antibodies; whole blood control products for use as daily quality assurance tests; and ancillary products that are used to support blood grouping.

The company also offers MosaiQ COVID-19 Microarray that is designed as a serological disease screening microarray specific to COVID-19 antibody detection.

Website:  www.quotientbd.co

Latest 10-k report: https://sec.report/Document/0001564590-21-031561/

Analyst Consensus: According to TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for QTNT in the last 3 months, the stock has a ‘Moderate Buy’ rating and a price target of $8.75, which is a 180.45% upside from current levels.

Source: TipRanks.com

Recent Analyst Ratings | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • QTNT winning a $3.7 million Veterans Affairs Contract.
  • The appointment of new management, including the new CCO who comes from Qiagen.
  • QTNT’s MosaiQ Expanded Immunohematology (IH) blood test that tracks the levels of antigens and antibodies in the blood beginning the review process in Europe. The CE Mark approval is expected by the end of the year. The company sees other applications for the test beyond detecting antibody and antigen levels, including molecular disease screening and serological disease screening.

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 pink 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 have currently gained control.

QTNT – Daily Chart

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

QTNT – Weekly Chart

#6 Bullish RSI: In the weekly chart the RSI is above 50 and moving higher, 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 QTNT is above the price of $3.50.

Target Prices: Our target prices are $4.50 and $5.50.

Stop Loss: To limit risk, place a stop loss at $2.90. Note that the stop loss is on a closing basis.

Our target potential upside is 29% to 57%.

For a risk of $0.60, our first target reward is $1.00, and the second target reward is $2.00. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Potential Risks / Red Flags:

  1. The company has been a loss-making company. As of March 31, 2021, QTNT had an accumulated deficit of $591.9 million.

    QTNT – Results of Operation

  2. The company is expected to fund its operations in the near-term, including the ongoing development of MosaiQ through successful field trial completion, achievement of required regulatory authorizations and commercialization, from a combination of funding sources, including with available cash and short-term investment balance, and the issuance of new equity or debt. This could result in significant dilution.
  3. Despite being a loss-making company, the company executives are drawing significant compensation.

    QTNT – Executive Compensation

  4. QTNT’s commercial success will largely depend upon the degree of market acceptance of MosaiQ by donor collection agencies, hospitals, and independent testing laboratories. It is also likely that other companies or institutions may develop and market novel or improved methods for transfusion diagnostics, which may make MosaiQ less competitive or obsolete.
  5. The company is heavily dependent upon its three largest OEM clients for a substantial portion of total revenues.
  6. As of March 31, 2021, the company had $145.0 million aggregate principal amount of the Secured Notes outstanding. The debt and other financings contain restrictive covenants and other provisions that could limit the company’s operating flexibility.

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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