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: AVROBIO, Inc. (NASDAQ: AVRO)
Today’s penny stock pick is the clinical-stage gene therapy company, AVROBIO, Inc. (NASDAQ: AVRO).
AVROBIO, Inc. develops ex vivo lentiviral-based gene therapies to treat rare diseases following a single dose worldwide. Its gene therapies employ hematopoietic stem cells that are collected from patients and modified with a lentiviral vector to insert functional copies of the gene that is defective in the target disease.
The company’s product includes AVR-RD-01, a gene therapy for the treatment of Fabry disease. It is also developing AVR-RD-02, which is in phase 1/2 clinical trial for the treatment of type 1 Gaucher disease; AVR-RD-03, for the treatment of Pompe disease; AVR-RD-04 for the treatment of cystinosis; AVR-RD-05 for the treatment of Hunter syndrome; and AVR-RD-06 that is in preclinical stage for the treatment of Gaucher disease type 3.
Website: https://www.avrobio.com
Latest 10-k report: https://investors.avrobio.com/sec-filings/sec-filing/10-k/0001564590-22-010895
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for AVRO in the last 3 months, the stock has an average price target of $4.50, which is nearly 166% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors that the company is exploring a possible sale after an approach from Novartis. A takeover for the company may be valued at more than quadruple its market price before it popped on the takeover speculation, according to a Street Insider report, which cited an unidentified source.
- Corporate Insiders Bought Shares Worth $100.1K in the Last 3 Months.
Insiders | Source: TipRanks.com
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 with historic high volume and is currently trading above it. The breakout level of this consolidation area typically acts as a good support level.
AVRO – 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 gaining control.
AVRO – 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 AVRO is above the price of $1.75.
Target Prices: Our first target is $3.20. If it closes above that level, the second target price is $4.20.
Stop Loss: To limit risk, place a stop loss at $0.90. Note that the stop loss is on a closing basis.
Our target potential upside is 83% to 140%.
For a risk of $0.85, our first target reward is $1.45, and the second target reward is $2.45. 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. AVRO incurred net losses of $119.1 million and $119.7 million for the years ended December 31, 2021, and 2020, respectively.
AVRO – Consolidated Statements of Operations
- Hedge Funds Decreased Holdings by 559.6K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- AVRO is a clinical-stage company founded in November 2015. The company’s limited operating history makes it difficult to evaluate the success of its business to date and assess its future viability.
- The company has never generated revenue from product sales and is not expected to do so for the next several years, if ever. AVRO may need to obtain additional funding to continue operations. Raising additional capital may cause dilution to existing stockholders, restrict the company’s operations, or cause the company to relinquish valuable rights.
- Despite being a loss-making company, the executives are being paid significant compensation.
AVRO – 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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