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: Ardelyx, Inc. (NASDAQ: ARDX)
Today’s penny stock pick is the biopharmaceutical company, Ardelyx, Inc. (NASDAQ: ARDX).
Ardelyx, Inc. discovers, develops, and commercializes medicines to treat gastrointestinal and cardiorenal therapeutic areas in the United States and internationally. The company’s lead product candidate is tenapanor (branded as IBSRELA) for the treatment of patients with irritable bowel syndrome with constipation.
It also develops XPHOZAH, which is in Phase III clinical trial to control serum phosphorus in adult patients with chronic kidney disease (CKD)on dialysis, or hyperphosphatemia; RDX013, a potassium secretagogue, for the treatment of elevated serum potassium, or hyperkalemia, a problem among certain patients with kidney and/or heart disease; and RDX020, for adult patients with metabolic acidosis, a serious electrolyte disorder.
ARDX began selling IBSRELA in the U.S. in March 2022. The company has agreements with Kyowa Kirin, Fosun Pharmaceutical Industrial Development Co. Ltd., and Knight Therapeutics, Inc. for the development and commercialization of tenapanor in their respective territories.
Website: https://www.ardelyx.com
Latest 10-k report: https://ir.ardelyx.com/sec-filings/sec-filing/10-k/0001628280-23-006041
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for ARDX in the last 3 months, the stock has an average price target of $9.50, which is nearly 97% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Tenapanor, ARDX’s new drug application to treat hyperphosphatemia was accepted for review in China.
- Last month Ardelyx reported its latest financial results and provided net sales revenue guidance for its IBSRELA product. The company beat earnings and sales estimates for the quarter and expects full-year 2023 net product revenue for IBSRELA to be between $72.0 and $77.0 million.
- Hedge Funds Increased Holdings by 2.5M 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.
ARDX – 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 SMA as well as 200-day SMA, indicating that the bulls have 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 as well as 200-week SMA, indicating that the bulls are in control.
ARDX – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ARDX is above the price of $5.00.
Target Prices: Our first target is $6.10. If it closes above that level, the second target price is $7.20.
Stop Loss: To limit risk, place a stop loss at $4.30. Note that the stop loss is on a closing basis.
Our target potential upside is 22% to 44%.
For a risk of $0.70, our first target reward is $1.10, and the second target reward is $2.20. 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 operating losses since its inception in 2007 and its accumulated deficit as of December 31, 2022, is $780.1 million.
ARDX – Consolidated Statements of Operations and Comprehensive Loss
- The company has a history of name changes. It was formerly known as SRC, LLC (1997–2010), and then Alteryx, LLC (2010–2011).
- The company has ongoing legal proceedings.
- On July 30 and August 12, 2021, two putative securities class action lawsuits were commenced in the U.S. District Court for the Northern District of California naming as defendants Ardelyx and two current officers captioned Strezsak v. Ardelyx, Inc., et al., Case No. 4:21-cv-05868-HSG, and Siegel v. Ardelyx, Inc., et al., Case No. 5:21-cv-06228-HSG. The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact related to tenapanor.
- On December 7, 2021 and March 29, 2022, two verified shareholders derivative lawsuits were filed in the U.S. District Court for the Northern District of California purportedly on behalf of Ardelyx against certain of Ardelyx’s executive officers and members of its board of directors, captioned Go v. Raab, et al., Case No. 4:21-cv-09455-HSG, and Morris v. Raab, et al., Case No. 4:22-cv-01988-JSC. The complaints allege that the defendants violations of Section 14(a) of the Securities Exchange Act of 1934, as amended, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, for personally making and/or causing Ardelyx to make materially false and misleading statements regarding the Company’s business, operations and prospects.
- Despite being a loss-making company, the executives are being paid significant compensation.
- Corporate Insiders placed Informative Sells of Shares Worth $196.0K in the Last 3 Months.
Insiders | Source: TipRanks.com
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.