Analysts Think This $3 Stock Has 120% Upside Potential

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: Frequency Therapeutics Inc. (NASDAQ: FREQ)

Today’s penny stock pick is the clinical-stage biotechnology company, Frequency Therapeutics Inc. (NASDAQ: FREQ).

Frequency Therapeutics Inc. focuses on developing therapeutics to activate a person’s innate regenerative potential to restore function. Its Progenitor Cell Activation approach uses small molecules and activates progenitor cells within the body to create functional tissue. The company’s lead product candidate is FX-322, which is in Phase IIa clinical trial to treat the underlying cause of sensorineural hearing loss.

It is also developing medicines for patients across a range of degenerative conditions, including multiple sclerosis, and diseases of the muscle, gastrointestinal tract, skin, and bone. The company has a license and collaboration agreement with Astellas Pharma Inc. for the development and commercialization of FX-322, as well as collaboration and licensing agreements with Massachusetts Eye and Ear, the Massachusetts Institute of Technology, The Scripps Research Institute, and Cambridge Enterprises Limited.

Website:  https://www.frequencytx.com

Latest 10-k report:  https://investors.frequencytx.com/sec-filings/sec-filing/10-k/0000950170-22-003655

Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for FREQ in the last 3 months, the stock has an average price target of $8.50, which is nearly 121% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• The company announced that the first patient was dosed in Phase 1b Study of FX-345, the Company’s Second Therapeutic Candidate for Sensorineural Hearing Loss. Study results are expected in H2 2023
• Frequency reported that its Lead Hearing Program, FX-322, is on Track for Phase 2b Topline Results in Q1 2023.
• Chardan Capital Markets analyst David Gataulin initiated coverage on Frequency Therapeutics with a Buy rating and a price target of $7.00.

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 range for the past several months. This is marked as a pink color rectangle in the chart. Currently, the stock has broken out of the consolidation area and is moving higher. 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 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 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 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 looks like a good area for the stock to move higher. The stock is also trading above its 50-week SMA, indicating that the bulls are gaining control.

#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 FREQ is above the price of $4.10.

Target Prices: Our first target is $5.60. If it closes above that level, the second target price is $7.00.

Stop Loss: To limit risk, place a stop loss at $3.20. Note that the stop loss is on a closing basis.

Our target potential upside is 37% to 71%.

For a risk of $0.90, our first target reward is $1.50, and the second target reward is $2.90. 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. FREQ’s net losses were $84.7 million and $26.5 million for the years ended December 31, 2021, and 2020, respectively. As of December 31, 2021, the company had an accumulated deficit of $180.1 million.
   

   FREQ – Consolidated Statements of Operations

2. The company has ongoing legal proceedings.
   1. On June 3, 2021, and June 22, 2021, purported stockholders of the Company filed putative class action lawsuits in the U.S. District Court for the District of Massachusetts against the Company entitled Evans v. Frequency Therapeutics, Inc. et al. and Hingston v. Frequency Therapeutics, Inc. et al., respectively. The lawsuits allege violations of Section 10(b), 20(a), and Rule 10b5 of the Securities Exchange Act of 1934, as amended, due to allegedly false and misleading statements and omissions about the Company’s Phase 2a clinical trial (FX-322-202) for its product candidate FX-322 in the Company’s public disclosures between November 16, 2020, and March 22, 2021.
   2. On June 24, 2021, two purported stockholders of the Company filed a lawsuit in the Court of Chancery of the State of Delaware against (i) the Company, (ii) the Company’s Chief Executive Officer, President, and Director, David Lucchino, (iii) Computershare Inc., and (iv) Computershare Trust Company, N.A., entitled The Gregory J. Parseghian Revocable Trust, et al. v. Frequency Therapeutics, Inc., et al. The lawsuit asserts causes of action against the Company of conversion and, in the alternative, unjust enrichment, and against Mr. Lucchino for breach of the fiduciary duty of loyalty, based on allegations that actions were taken to prevent the purported stockholders from selling their shares in the Company.
3. FREQ is heavily dependent on the success of FX-322, the lead product candidate for the treatment of hearing loss, which is still under clinical development. If FX-322 does not receive regulatory approval or is not successfully commercialized, the company’s business could be materially adversely harmed.
4. Hedge Funds Decreased Holdings by 222.2K Shares Last Quarter.
   

   Hedge Funds | Source: TipRanks.com

5. The company faces significant competition from biotechnology, pharmaceutical, and medical device companies.
6. Despite being a loss-making company, the executives are being paid significant compensation.
   

   FREQ – 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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