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: Obseva SA (NASDAQ: OBSV)
Today’s penny stock pick is the clinical-stage biopharmaceutical company, Obseva SA (NASDAQ: OBSV).
Obseva SA focuses on the development and commercialization of novel therapeutics for women suffering from reproductive health and pregnancy. It is developing Linzagolix, an oral gonadotropin releasing hormone receptor antagonist that is in Phase III clinical trial for the treatment of pain associated with endometriosis and heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.
The company is also involved in developing Ebopiprant, an oral and selective prostaglandin F2a, or PGF2a receptor antagonist, which is in Phase II clinical trial as a once daily treatment for preterm labor in weeks 24 to 34 of gestational age; and Nolasiban, an oral oxytocin receptor antagonist that is in Phase I clinical trial to enhance clinical pregnancy and live birth rates in women undergoing in vitro fertilization.
Website: www.obseva.com
Latest 10-k report: https://sec.report/Document/0001564590-22-009472/
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for OBSV in the last 3 months, the stock has an average price target of $11.67, which is nearly 559% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company entered into a licensing agreement with the British biopharma company Theramex for the commercialization of linzagolix outside of the US, Canadian, and Asian markets. OBSV also received a positive decision from the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) on the use of linzagolix in the treatment of uterine fibroids.
- The company has submitted a New Drug Application to the FDA for the uterine fibroid indication, and expects action by the PDUFA date of September 13 in this year.
- ObsEva announced efficacy results from the Phase 3 trial of lingazolix in the treatment of moderate-to-severe pain related to endometriosis. Further data from the study is expected to be released in 3Q22.
- Expected approval of linzagolix for uterine fibroids in Europe.
- Rumors of a buyout.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Channel Breakout: The daily chart shows that the stock has been trading within a downtrend channel for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the channel before bouncing back. The stock has currently broken out from the downtrend channel. Once the stock breaks out of a channel, it could move higher.
OBSV – 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.
OBSV – 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, 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 OBSV is above the price of $2.00.
Target Prices: Our first target is $3.30. If it closes above that level, the second target price is $4.60.
Stop Loss: To limit risk, place a stop loss at $1.20. Note that the stop loss is on a closing basis.
Our target potential upside is 65% to 130%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.60. 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. OBSV’s net loss was $58.4 million and $83.0 million for the years ended December 31, 2021, and 2020, respectively. As of December 31, 2021, the company had accumulated losses of $467.8 million.
OBSV – Consolidated Statements of Comprehensive Loss
- Hedge Funds Decreased Holdings by 999.4K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
OBSV – 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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