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: Orchard Therapeutics PLC – ADR (NASDAQ: ORTX)
Today’s penny stock pick is the biopharmaceutical company, Orchard Therapeutics PLC – ADR (NASDAQ: ORTX).
Orchard Therapeutics PLC – ADR develops gene therapies for serious and life-threatening rare diseases in the United Kingdom, European Union, and the United States. The company’s gene therapy approach seeks to transform a patient’s hematopoietic stem cells into a gene-modified cellular drug product to treat the patient’s disease through a single administration.
It provides Strimvelis, a gammaretroviral-based product for the treatment of adenosine deaminase-severe combined immunodeficiency (ADA-SCID). The company’s clinical development products comprise OTL-101 for the treatment of ADA-SCID; OTL-200 to treat metachromatic leukodystrophy; OTL-103 for the treatment of Wiskott-Aldrich syndrome; OTL-102 for X-linked chronic granulomatous disease; and OTL-300 for transfusion-dependent beta-thalassemia.
Its preclinical programs include OTL-203 for mucopolysaccharidosis type I, OTL-201 for mucopolysaccharidosis type MPS-IIIA, and OTL-202 for mucopolysaccharidosis type IIIB. It has a strategic collaboration agreement with Pharming Group N.V. for research, development, manufacturing, and commercialization of OTL-105, an investigational ex vivo autologous hematopoietic stem cell gene therapy for the treatment of hereditary angioedema.
Website: https://www.orchard-tx.com
Latest 10-k report: https://sec.report/Document/0001564590-22-012325
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for ORTX in the last 3 months, the stock has an average price target of $4.00, which is nearly 493% upside from current levels.
Source: TipRanks.com
Analysts| Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company recently reached an agreement with the National Health Service (NHS) that enables access to Libmeldy® (atidarsagene autotemcel) for all children with metachromatic leukodystrophy (MLD). As the MLD testing increases, the company’s revenue is also expected to increase.
- Rumors that the company is working on using its Stem Cell technology on a more main stream disease. If successful, this would translate to better revenues.
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.
ORTX – Daily Chart
#2 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls have currently gained control.
#3 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.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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.
ORTX – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 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 ORTX is above the price of $0.70.
Target Prices: Our first target is $1.30. If it closes above that level, the second target price is $1.80.
Stop Loss: To limit risk, place a stop loss at $0.35. Note that the stop loss is on a closing basis.
Our target potential upside is 86% to 157%.
For a risk of $0.35, our first target reward is $0.60, and the second target reward is $1.10. 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. ORTX incurred net losses of $144.6 million and $152.0 million for the years ended December 31, 2021, and 2020, respectively.
ORTX – Consolidated Statements of Operations
- The company was formerly known as Orchard Rx Limited.
- Hedge Funds Decreased Holdings by 1.3M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- There has been a sector wide decline of gene therapy stocks due to bluebird bio’s (BLUE) viral vector adverse event problems. In a domino effect, ORTX’s Libmeldy or OTL-200 BLA for MLD or metachromatic leukodystrophy was delayed to 2023.
- Despite being a loss-making company, the executives are being paid significant compensation.
ORTX – Executive Compensation
- The company’ only approved drug is Strimvelis, which has not generated any significant revenue so far.
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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