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: Trevi Therapeutics Inc. (NASDAQ: TRVI)
Today’s penny stock pick is the clinical-stage biopharmaceutical company, Trevi Therapeutics Inc. (NASDAQ: TRVI).
Trevi Therapeutics Inc. focuses on the development and commercialization of Haduvio to treat serious neurologically mediated conditions. The company is developing Haduvio, an oral extended-release formulation of nalbuphine, which is in phase IIb/III clinical trial for the treatment of chronic pruritus, chronic cough in patients with idiopathic pulmonary fibrosis. It has a license agreement with Endo Pharmaceuticals Inc. to develop and commercialize products incorporating nalbuphine hydrochloride in any formulation.
Website: https://www.trevitherapeutics.com
Latest 10-k report: https://sec.report/Document/0001564590-22-010875
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for TRVI in the last 3 months, the stock has an average price target of $10.00, which is nearly 256% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company announced positive results from its Phase 2b/3 Pruritus Relief through Itch-Scratch Modulation (PRISM) trial of Haduvio in treating prurigo nodularis. The Phase 2b/3 trial (PRISM) successfully met the key primary and secondary endpoints.
- Needham analyst maintained its Buy rating for the stock and adjusted the price target to $10 from $8.
Analysts | Source: TipRanks.com
- Corporate Insiders Bought Shares Worth $57.6M 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 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as pink color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
TRVI – 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 MAs: The stock is currently above its 50-day as well as 200-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.
TRVI – 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.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for TRVI is above the price of $2.90.
Target Prices: Our first target is $4.10. If it closes above that level, the second target price is $5.00.
Stop Loss: To limit risk, place a stop loss at $2.20. Note that the stop loss is on a closing basis.
Our target potential upside is 41% to 72%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.10. 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. TRVI’s net losses were $33.9 million and $32.8 million for the years ended December 31, 2021, and 2020, respectively. As of December 31, 2021, the company had an accumulated deficit of $180.9 million.
TRVI – Consolidated Statements of Operations
- Hedge Funds Decreased Holdings by 1.3M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company has significant cash burn. In the years ended December 31, 2021, and 2020, TRVI used net cash of $28.9 million and $29.0 million, respectively, in its operating activities.
- Despite being a loss-making company, the executives are being paid significant compensation.
TRVI – 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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