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: Summit Therapeutics Inc. (NASDAQ: SMMT)
Today’s penny stock pick is the biopharmaceutical company, Summit Therapeutics Inc. (NASDAQ: SMMT).
Summit Therapeutics Inc. discovers, develops, and commercializes medicines to treat infectious diseases in the United States and Latin America. It conducts clinical programs focusing on Clostridioides difficile infection (CDI).
The company’s lead product candidate is ridinilazole, an orally administered small molecule antibiotic that is in Phase III clinical trials for the treatment of CDI. It also offers SMT-738, for combating multidrug resistant infections primarily carbapenem-resistant Enterobacteriaceae infections; and DDS-04 series for the potential treatment of infections caused by the Enterobacteriaceae.
Website: https://www.summittxinc.com
Latest 10-k report: https://portalvhds1fxb0jchzgjph.blob.core.windows.net/press-releases-attachments/1397061/Annual%20report%20%5BSection%2013%20and%2015%28d%29%2C%20not%20S-K%20Item%20405%5D.pdf
Analyst Consensus: Not Covered By Wall Street Analysts.
Potential Catalysts / Reasons for the Hype:
- The company announced a definitive agreement of its partnership with Akeso Inc. to in-license its breakthrough bispecific antibody, ivonescimab. The total potential deal value is $5.0 billion. Akeso is currently evaluating ivonescimab in a late-stage clinical study as a second-line treatment for non-small cell lung cancer that’s positive for an epidermal growth factor receptor (EGFR) mutation.
- SMMT entered into an exclusive licensing agreement with drugmaker Sarepta Therapeutics. The two companies will develop drugs to treat Duchenne muscular dystrophy. Under the agreement, Summit will get $40 million upfront and could receive $522 million in milestone payments. Just last month, Sarepta won approval from the FDA for a drug to treat the disorder.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Breakout from Consolidation area: The daily chart shows that the stock was consolidating within a price range for the past few days. This area is marked as a pink color rectangle. The stock has now broken out from this consolidation area and is currently trading above it. The breakout level of this consolidation area typically acts as a good support level.
SMMT – 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 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 purple color dotted line. This is a possible bullish indication. The stock is also trading above its 50-week SMA, indicating that the bulls are in control.
SMMT – Weekly Chart
#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 SMMT is above the price of $4.70.
Target Prices: Our first target is $5.60. If it closes above that level, the second target price is $6.60.
Stop Loss: To limit risk, place a stop loss at $4.10. Note that the stop loss is on a closing basis.
Our target potential upside is 20% to 42%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $1.95. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- Since its inception, the company has incurred significant operating losses. During the year ended December 31, 2021, SMMT incurred a net loss of $88.6 million. As of December 31, 2021, the company had an accumulated deficit of $299.50 million.
SMMT – Consolidated Statements of Operations and Comprehensive Loss
- Rumors of an upcoming offering, that could dilute the shares.
- The company requires substantial additional capital to fund its operations and failure to obtain necessary financing would impact the development and commercialization of its product candidates.
- The company does not have regulatory approval for any of its product candidates yet.
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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