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: Paratek Pharmaceuticals Inc. (NASDAQ: PRTK)
Today’s penny stock pick is the commercial-stage biopharmaceutical company, Paratek Pharmaceuticals Inc. (NASDAQ: PRTK).
Paratek Pharmaceuticals Inc. focuses on the development and commercialization of life-saving therapies for life-threatening diseases or other public health threats for civilian, government, and military use.
Its lead product candidates include NUZYRA, a once-daily oral and intravenous broad-spectrum antibiotic for the treatment of adult patients with community-acquired bacterial pneumonia and acute bacterial skin and skin structure infections caused by susceptible pathogens; and SEYSARA, a tetracycline designed for the treatment of moderate to severe acne vulgaris.
The company has license and collaboration agreements with Zai Lab (Shanghai) Co., Ltd. and Allergan plc; license agreement with Tufts University to develop and commercialize products for the treatment or prevention of bacterial or microbial diseases, or medical conditions; and contract with Biomedical Advanced Research and Development Authority to support the development of NUZYRA for the treatment of pulmonary anthrax.
In addition, it has license agreement with Tetraphase Pharmaceuticals, Inc. to develop, import, and sell the XERAVATM product, which is used for the treatment of complicated intra-abdominal infections caused by bacteria.
Website: www.paratekpharm.com
Latest 10-k report: https://sec.report/Document/0001564590-22-009957
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for PRTK in the last 3 months, the stock has an average price target of $21.00, which is nearly 614% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The stock had unusual activity from institutional traders with an average of 56% out of the money, a leading indicator of market movement.
- PRTK received funding from the BARDA contract. The $304 million BARDA contract is expected to provide a pathway to profitability by 4Q2022.
- Rumors of a buyout.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Falling Wedge Pattern: 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 currently looks poised for a breakout from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
PRTK – 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 Bullish Stoch: The %K line of the stochastic is above the %D line, and has also moved higher from oversold levels, indicating possible bullishness.
#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 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.
PRTK – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, and is also moving higher from oversold levels, indicating possible bullishness.
#7 Oversold RSI: In the weekly chart, the RSI is currently moving higher from oversold levels. This usually points to the possibility of an upmove soon.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for PRTK is above the price of $3.50.
Target Prices: Our first target is $4.50. If it closes above that level, the second target price is $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:
- The company has a history of net losses. PRTK’s net loss for the year ended December 31, 2021, was $59.1 million. As of December 31, 2021, the company’s accumulated deficit was $866.9 million.
PRTK – Consolidated Statements of Operations and Comprehensive Loss
- Hedge Funds Decreased Holdings by 12.1K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company executives are being paid significant compensation, even though the company has been reporting losses year over year.
PRTK – Executive Compensation
- The company’s employees, officers, directors, and consultants are granted options and other equity instruments to purchase common shares under the 2015 Plan, the 2015 Inducement Plan, and the 2017 Inducement Plan. All shares canceled or forfeited during the years ended December 31, 2021, and 2020 under older plans became available for grant under the 2015 Plan. The company granting free shares citing ‘inducement grant’ seems like a red flag.
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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