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: Brickell Biotech Inc. (NASDAQ: BBI)
Today’s penny stock pick is the biotech company, Brickell Biotech Inc. (NASDAQ: BBI).
Brickell Biotech Inc. focuses on identifying, developing, and commercializing various prescription therapeutics for the treatment of debilitating skin diseases in the United States. The company’s lead product candidate is sofpironium bromide that is in phase 3 clinical trial to treat patients with primary axillary hyperhidrosis. It has a collaboration agreement with AnGes, Inc. for the development of a novel DNA vaccine candidate for COVID-19.
Website: www.brickellbio.com
Latest 10-k report: https://sec.report/Document/0000819050-21-000029/
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for BBI in the last 3 months, the stock has an average price target of $2.00, which is nearly 506% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- C. Wainwright analyst Ram Selvaraju initiated a ‘Buy’ position on BBI on Tuesday.
Analyst Forecasts | Source: TipRanks.com
- The company recently announced positive topline results from the Phase 3 pivotal Cardigan I and Cardigan II studies, which evaluated sofpironium bromide gel, 15% as a once daily topical formulation in patients with primary axillary hyperhidrosis (excessive underarm sweating).
- Brickell Biotech Announced $5.0 Million Bought Deal Offering of Common Stock.
- Rumors of FDA approval during 1st quarter 2022.
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 pink 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 with historic high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
BBI – 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 had moved 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#5 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.
#6 Above Support Area: The weekly chart shows that the stock is currently trading above a support area, which is marked as a purple color dotted line. This is a possible bullish indication.
BBI – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
#8 Bullish RSI: The RSI is currently moving higher from oversold levels, indicating that the stock could move higher.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for BBI is above the price of $0.37
Target Prices: Our first target is $0.60. If it closes above that level, the second target price is $1.00.
Stop Loss: To limit risk, place a stop loss below $0.24. Note that the stop loss is on a closing basis.
Our target potential upside is 62% to 170%.
For a risk of $0.13, our first target reward is $0.23, and the second target reward is $0.63. This is a nearly 1:2 and 1:5 risk-reward trade.
In other words, this trade offers 2x to 5x more potential upside than downside.
Potential Risks / Red Flags:
- The company has a history of net losses. For the years ended December 31, 2020, and 2019, BBI had a net loss of $20.9 million and $23.9 million, respectively. As of December 31, 2020, the company had an accumulated deficit of $105.9 million.
BBI – Results of Operations
- Despite being a loss-making company, the executives are being paid significant compensation.
BBI – Executive Compensation
- On August 17, 2020, the company had received a notice from the Listing Qualifications Department of the Nasdaq informing that because the closing bid price for BBI’s common stock listed on Nasdaq was below $1.00 per share for 30 consecutive business days, the company was not in compliance with the minimum closing bid price requirement for continued listing.
- The company’s business is heavily dependent on the successful financing, clinical development, regulatory approval, and commercialization of sofpironium bromide.
- Sofpironium bromide, if approved, will face significant competition from pharmaceutical companies, generic drug companies, biotechnology companies, and academic and research institutions. For instance, Eli Lilly already has a medication approved in this space, Qbrexza, which is also an anticholinergic and is applied with cloth wipes.
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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