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: Marrone Bio Innovations Inc. (NASDAQ: MBII)
Today’s penny stock pick is the California-based biotech company, Marrone Bio Innovations Inc. (NASDAQ: MBII).
Marrone Bio Innovations, Inc. discovers, develops, produces, and promotes biological products for pest management, plant nutrition, and plant health in the United States and internationally. Its products include Emergen, Foramin, Foramin ST, Pacesetter, UBP, and UBP ST for increasing crop health, yield, and quality; Grandevo, a bioinsecticide that controls sucking and chewing insects through feeding; Haven, a plant health product to reduce sun stress and dehydration; Jet-Ag and Jet-Oxide peroxyacetic acid sanitizers that prevent, suppress, eliminate, and control algae, fungi, and bacterial diseases in agriculture and horticultural industries; and Majestene, a bionematicide to control soil-dwelling nematodes and certain soil borne insects. The company also offers Regalia and Stargus, which are bio fungicides that protects against fungal and bacterial diseases and enhances yields/quality; Venerate, a bioinsecticide, which controls chewing and sucking insects and mites, as well as flies and plant parasitic nematodes; and Zelto, a bionematicide that protects turf, including golf course fairways and greens, and promotes turf health by enhancing plant and root health. The company provides its products directly through sales force, as well as through distributors and other commercial partners.
Website: www.marronebioinnovations.com
Latest 10-k report: https://sec.report/Document/0001493152-21-006648/
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for MBII in the last 3 months, the stock has an average price target of $2.63, which is nearly 224% upside from current levels.
Source: TipRanks.com
Analyst Forecasts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company in December announced that it had acquired exclusive rights to a strain of Streptomyces acidiscabies, a microorganism targeted for use in second-gen bioherbicides. These compounds will address a problem currently costing corn and soybean growers in the US and Canada more than $43 billion annually.
- Corporate Insiders Bought Shares Worth $3.1M in the Last 3 Months.
Insiders | Source: TipRanks.com
- The company announced the expansion of its existing inventory line of credit to support projections for growth in sales and manufacturing capacity. It can access a maximum of $4.5 million to fund inventory needs, up from $3 million under a prior deal per an amended agreement with LSQ Funding Group, L.C.
- Marrone Bio Achieved Excellent Climate Impact Score for Venerate® XC Bioinsecticide.
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 has been forming a falling wedge pattern for the past several months. 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 from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
MBII – 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 is currently moving higher from below the +DI and -DI lines.
#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#4 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.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a pink color dotted line. This is a possible bullish indication.
MBII – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart as well, 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, the ideal buy level for MBII is above the price of $0.86.
Target Prices: Our first target is $1.60. If it closes above that level, the second target price is $2.40.
Stop Loss: To limit risk, place a stop loss at $0.50. Note that the stop loss is on a closing basis.
Our target potential upside is 86% to 179%.
For a risk of $0.36, our first target reward is $0.74, and the second target reward is $1.54. 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. As of December 31, 2020, MBII had an accumulated deficit of $340.8 million, and for the years ended December 31, 2020, and 2019, the company had a net loss attributable to common stockholders of $20.2 million and $37.2 million, respectively.
MBII – Net Loss
- The company was formerly known as Marrone Organic Innovations, Inc.
- Hedge Funds Decreased Holdings by 224.0K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company executives are being paid significant compensation, despite being a loss-making company.
MBII – 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.
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