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: Ginkgo Bioworks Holdings Inc. (NYSE: DNA)
Today’s penny stock pick is the cell programming company, Ginkgo Bioworks Holdings Inc. (NYSE: DNA).
Ginkgo Bioworks Holdings Inc. develops a platform for cell programming. Its platform is used to program cells to enable the biological production of products, such as novel therapeutics, food ingredients, and chemicals derived from petroleum. The company serves various end markets, including specialty chemicals, agriculture, food, consumer products, and pharmaceuticals. Ginkgo Bioworks has a partnership with Selecta Biosciences, Inc. to advance treatments for orphan and rare diseases.
Website: https://www.ginkgobioworks.com/
Latest 10-k report: https://investors.ginkgobioworks.com/sec-filings/sec-filings-details/default.aspx?FilingId=16484095
Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for DNA in the last 3 months, the stock has an average price target of $2.70, which is nearly 27% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company announced the completion of the pilot phase of their previously announced partnership with Novo Nordisk, a leading global healthcare company, to develop expression systems for pharmaceutical products.
- Corporate Insiders Bought Shares Worth $960.0K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Hedge Funds Increased Holdings by 99.7M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock has currently broken out a symmetrical triangle pattern, which is marked as purple color lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out. This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper trend line occurs, it usually signifies the start of a new bullish trend.
DNA – 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 pink 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.
DNA – Weekly Chart
#7 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 DNA is above the price of $2.20.
Target Prices: Our first target is $2.90. If it closes above that level, the second target price is $3.50.
Stop Loss: To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 32% to 59%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.30. 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 incurred significant operating losses since its inception. DNA’s net loss was approximately $2,104.9 million, $1,830.0 million, and $126.6 million for the fiscal years ended December 31, 2022, 2021, and 2020, respectively.
- On August 4, 2021, a putative securities class action was filed on behalf of purchasers of the common stock of Zymergen,
DNA – Consolidated Statements of Operations
pursuant to or traceable to the registration statement for Zymergen’s initial public offering. The action alleges violations of Sections 11 and 15 of the Securities Act of 1933, as amended in connection with Zymergen’s IPO. In addition, certain government agencies, including the SEC, have requested information related to Zymergen’s August 3, 2021 disclosure. DNA completed its acquisition of Zymergen on October 19, 2022.
- The company does not currently have any commitments for future funding.
- DNA has customer concentration risk. During the year ended December 31, 2022, two customers each represented more than 10% of DNA’s total revenue and cumulatively represented 22% of its total revenue.
- Despite being a loss-making company, the executives are being paid significant compensation.
DNA – 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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