This High Risk / High Reward Stock Broke Out on Historic High Volume

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: Evofem Biosciences Inc. (NASDAQ: EVFM)

Today’s penny stock pick is the biopharmaceutical company, Evofem Biosciences Inc. (NASDAQ: EVFM).

Evofem Biosciences Inc. develops and commercializes various products to address unmet needs in women’s sexual and reproductive health. Its commercial product is Phexxi, a vaginal gel for the prevention of pregnancy. The company is also involved in the development of EVO100, an antimicrobial vaginal gel for the prevention of urogenital transmission of Chlamydia trachomatis infection and Neisseria gonorrhoeae infection in women.

Website: www.evofem.com

Latest 10-k report:  https://sec.report/Document/0001618835-22-000057

Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for EVFM in the last 3 months, the stock has an average price target of $2.63, which is nearly 607% upside from current levels.

Source: TipRanks.com

Analysts | Source: TipRanks.com

Potential Catalysts / Reasons for the Hype:

  • The overturning of the 1973 Roe v. Wade judgment that legalized abortion in the US is anticipated to increase the sale of products like EVFM’s Phexxi, used for pregnancy prevention.
  • Corporate Insiders Bought Shares Worth $49.4K in the Last 3 Months.

    Insiders | Source: TipRanks.com

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as pink color lines. This is a possible bullish indication.

EVFM – Daily Chart

#2 Oversold RSI: The RSI is moving higher from oversold levels, indicating the possibility of a bullish reversal.

#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 purple color dotted line. The stock is also moving higher with a historic high volume. All these are possible bullish indications.

EVFM – Weekly Chart

#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for EVFM is above the price of $0.40.

Target Prices: Our first target is $0.49. If it closes above that level, the second target price is $0.75.

Stop Loss: To limit risk, place a stop loss at $0.34. Note that the stop loss is on a closing basis.

Our target potential upside is 23% to 88%.

For a risk of $0.06, our first target reward is $0.09, and the second target reward is $0.35. 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:

  1. The company has a history of net losses. EVFM reported net losses of $206.2 million and $142.3 million for the years ended December 31, 2021, and 2020, respectively. As of December 31, 2021, the company had an accumulated deficit of $860.7 million.

    EVFM – Consolidated Statements of Operations

  2. Hedge Funds Decreased Holdings by 23.2K Shares Last Quarter.

    Hedge Funds | Source: TipRanks.com

  3. Since July 12, 2021, the closing bid price for the company’s common stock has been below $1.00 per share. The company is listed under NASDAQ Non-Compliance Failure to Meet the Minimum Bid Price of $ 1.00 per share.
  4. As per NASDAQ notice, on August 9, 2022 (the “Effective Date”), the Company must effect the Reverse Split at a ratio sufficient to ensure compliance with the Bid Price Rule, and on August 22, 2022, the Company must have demonstrated compliance with the Bid Price Rule for a minimum of ten consecutive trading days. The August 9, 2022, reverse split of the stock could wipe out any potential profits.
  5. The company has ongoing legal proceedings. On December 14, 2020, a trademark dispute captioned TherapeuticsMD, Inc. v Evofem Biosciences, Inc., was filed in the United States District Court for the Southern District of Florida- West Palm Beach Division against the Company, alleging trademark infringement of certain trademarks owned by TherapeuticsMD under federal and state law.
  6. Despite being a loss-making company, the executives are being paid millions in compensation.

    EVFM – 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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