The Bulls Have Gained Control of This High Risk / High Reward Stock

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: Iterum Therapeutics PLC (NASDAQ: ITRM)

Today’s penny stock pick is the clinical-stage pharmaceutical company, Iterum Therapeutics PLC (NASDAQ: ITRM).

Iterum Therapeutics PLC engages in developing and commercializing anti-infectives in Ireland, Bermuda, and the United States. It is developing sulopenem, a novel anti-infective compound with oral and IV formulations that is in Phase III clinical trials for the treatment of uncomplicated urinary tract infections, complicated urinary tract infections, and complicated intra-abdominal infections.

Website:  https://www.iterumtx.com

Latest 10-k report:  https://sec.report/Document/0001564590-22-011897

Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for ITRM in the last 3 months, the stock has an average rating of ‘Hold’.

Potential Catalysts / Reasons for the Hype:

• The news of a clinical trial agreement with the U.S. Food and Drug Administration (FDA). The company has agreed with the FDA under the special protocol assessment (SPA) process on the design, endpoints, and statistical analysis of a Phase 3 trial for oral sulopenem etzadroxil-probenecid for uncomplicated urinary tract infections.
• Rumors of a potential acquisition of the company.

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 with a high volume, which is shown as purple color lines. This is a possible bullish indication.

#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.

#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 as well, 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 ITRM is above the price of $0.38.

Target Prices: Our first target is $0.60. If it closes above that level, the second target price is $0.80.

Stop Loss: To limit risk, place a stop loss at $0.22. Note that the stop loss is on a closing basis.

Our target potential upside is 62% to 116%.

For a risk of $0.15, our first target reward is $0.23, and the second target reward is $0.43. 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:

1. The company has a history of net losses. As of December 31, 2021, ITRM had an accumulated deficit of $378.5 million.
   

   ITRM – Consolidated Statements of Operations and Comprehensive Loss

2. On September 7, 2021, ITRM received a letter from the Listing Qualifications Department of The Nasdaq Stock Market, LLC, indicating that, based on the closing bid price for the previous 30 consecutive business days, the listing of the company’s ordinary shares was not in compliance with Nasdaq Listing Rule 5550(a)(2) to maintain a minimum bid price of $1.00 per share (the Bid Price Rule). Under Nasdaq Listing Rule 5810(c)(3)(A). The company might need to regain compliance by effecting a reverse share split, if necessary.
3. Despite being a loss-making company, the executives are being paid significant compensation.
   

   ITRM – Executive Compensation

4. On August 5, 2021, a class putative action lawsuit was filed against the Company, its Chief Executive Officer and Chief Financial Officer in the United States District Court for the Northern District of Illinois. The complaint purports to be brought on behalf of shareholders who purchased the Company’s securities between November 30, 2020, and July 26, 2021. The complaint generally alleges that the defendants violated Section 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making purportedly material misstatements or omissions concerning the Company’s submission of its NDA to the FDA for marketing approval of oral sulopenem for the treatment of uUTIs in patients with a quinolone non-susceptible pathogen and the likelihood of such approval.

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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