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: Adial Pharmaceuticals Inc. (NASDAQ: ADIL)
Today’s penny stock pick is the clinical-stage biopharmaceutical company, Adial Pharmaceuticals Inc. (NASDAQ: ADIL).
Adial Pharmaceuticals Inc. focuses on the development of therapeutics for the treatment or prevention of addiction and related disorders. Its lead product is AD04, a selective serotonin-3 antagonist, which is in Phase III clinical trial for the treatment of alcohol use disorder. The company also focuses on developing drug candidates for non-opioid pain reduction and other diseases and disorders.
Website: https://www.adialpharma.com
Latest 10-k report: https://sec.report/Document/0001213900-22-015562
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analyst offering 12-month price targets for ADIL in the last 3 months, the stock has an average price target of $8.50, which is nearly 467% upside from current levels.
Source: TipRanks.com
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company was recently awarded an additional patent that covers the use of the Company’s genetic diagnostic panel in combination with the Company’s lead product, AD04, for the treatment of alcohol use disorder (AUD) and Opioid Use Disorder (OUD).
- The upcoming ONWARD Phase 3 clinical trial The ONWARD trial is a Phase 3 clinical study to evaluate the efficacy, safety and tolerability of AD04 in patients with Alcohol Use Disorder and selected polymorphisms in the serotonin transporter and receptor genes.
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 purple color lines. This is a possible bullish indication.
ADIL – 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 Bullish RSI: The RSI is above 50 and moving higher, 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 Cup and Handle Pattern Breakout: The weekly chart shows that the stock has broken out of a cup and handle pattern. This is marked in the chart in orange color. A cup and handle pattern is a consolidation and breakout pattern and a breakout from this indicates that the stock may move higher.
ADIL – 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 ADIL is above the price of $1.60.
Target Prices: Our first target is $2.40. If it closes above that level, the second target price is $3.00.
Stop Loss: To limit risk, place a stop loss at $1.15. Note that the stop loss is on a closing basis.
Our target potential upside is 50% to 88%.
For a risk of $0.45, our first target reward is $0.80, and the second target reward is $1.40. 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. As of December 31, 2021, ADIL had an accumulated deficit of approximately $50.9 million.
ADIL – Consolidated Statements of Operations
- The company is a clinical-stage company and has had limited operations to date. ADIL currently has no products approved for commercial sale and no product revenues. The company’s business is dependent upon the success of its lead product candidate, AD04, which requires significant additional clinical testing before the company can seek regulatory approval and potentially launch commercial sales.
- Despite reporting increasing losses year-over-year, the executives are being paid significant compensation.
ADIL – Executive Compensation
- To date, there have been many days on which limited trading of the company’s common stock took place. As the stocks have a history of being thinly traded, investors may have difficulty selling ADIL’s common stock that they buy.
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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