We recently started a series called “Penny Stock of the Day”. These ideas are geared towards 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: Ginkgo Bioworks Holdings Inc. (NYSE: DNA)
Today’s penny stock pick is the cell programming company, Ginkgo Bioworks Holdings Inc. (NYSE: DNA).
Ginkgo Bioworks Holdings Inc. develops platform for cell programming. Its platform is used to program cells to enable biological production of products, such as novel therapeutics, food ingredients, and chemicals derived from petroleum. The company serves various end markets, including specialty chemicals, agriculture, food, consumer products, and pharmaceuticals. Ginkgo Bioworks has a partnership with Selecta Biosciences, Inc. to advance treatments for orphan and rare diseases.
Website: https://www.ginkgobioworks.com/
Latest 10-k report: https://sec.report/Document/0000950170-22-004821
Analyst Consensus: As per TipRanks Analytics, based on 5 Wall Street analysts offering 12-month price targets for DNA in the last 3 months, the stock has an average price target of $9.13, which is nearly 99% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported revenue growth in the fourth quarter of 2021 that was much better than expected, a 363% year-over-year increase.
- Hedge Funds Increased Holdings by 19.5M Shares Last Quarter.
Hedge Funds | 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 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.
DNA – 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 Downtrend Broken: The weekly chart shows that the stock has currently broken out of the prevailing downtrend and is starting to move higher. This is a possible bullish indication.
DNA – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, and is also moving higher from oversold levels, indicating possible bullishness.
#8 Oversold RSI: In the weekly chart, the RSI is currently moving higher from oversold levels. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for DNA is above the price of $4.70.
Target Prices: Our first target is $6.00. If it closes above that level, the second target price is $8.00.
Stop Loss: To limit risk, place a stop loss at $4.10. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 70%.
For a risk of $0.60, our first target reward is $1.30, and the second target reward is $3.30. This is a nearly 1:2 and 1:6 risk-reward trade.
In other words, this trade offers 2x to 6x more potential upside than downside.
Potential Risks / Red Flags:
- The company has incurred significant operating losses since its inception. DNA’s net loss was approximately $1,830.0 million, $126.6 million, and $119.3 million for the fiscal years ended December 31, 2021, 2020, and 2019, respectively.
DNA – Consolidated Statements of Operations and Comprehensive Loss
- Despite being a loss-making company, the executives are being paid massive compensation.
DNA – Executive Compensation
- The company’s limited operating history makes it difficult to evaluate its current business and future prospects.
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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