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: Arcutis Biotherapeutics, Inc. (NASDAQ: ARQT)
Today’s penny stock pick is the biopharmaceutical company, Arcutis Biotherapeutics, Inc. (NASDAQ: ARQT).
Arcutis Biotherapeutics, Inc. focuses on developing and commercializing treatments for dermatological diseases. Its lead product candidate is ARQ-151, a topical roflumilast cream that has completed Phase III clinical trials for the treatment of plaque psoriasis and atopic dermatitis.
The company is also developing ARQ-154, a topical foam formulation of roflumilast for the treatment of seborrheic dermatitis and scalp psoriasis; ARQ-252, a selective topical janus kinase type 1 inhibitor for hand eczema and vitiligo; ARQ-255, a topical formulation of ivarmacitinib designed to reach deeper into the skin in order to treat alopecia areata; and ARQ-234, a CD200R fusion protein for the treatment of moderate-to-severe atopic dermatitis. The company was founded in June 2016 under the name Arcutis, Inc. and changed its name to Arcutis Biotherapeutics, Inc. in October 2019.
Website: https://www.arcutis.com
Latest 10-k report: https://investors.arcutis.com/static-files/2832f0e6-3bed-4184-8897-2690a8676c17
Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for ARQT in the last 3 months, the stock has an average price target of $10.60, which is nearly 171% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- FDA recently approved the new drug application (NDA) for Zoryve (roflumilast) topical foam 0.3% for the treatment of seborrheic dermatitis in patients aged nine years and above.
- Corporate Insiders placed Informative Buys of Shares Worth $291.7K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Japanese investment bank Mizuho upgraded Arcutis Biotherapeutics to buy, citing sales of the company’s drug Zoryve. Mizuho said that recent adoption trends for Zoryve in the treatment of psoriasis have been better than expected, which increases confidence in the drug’s upcoming launch for seborrheic dermatitis.
- Hedge Funds Increased Holdings by 296.5K 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 Falling Wedge Pattern Breakout: The daily chart shows that the stock has been forming a falling wedge pattern for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
ARQT – 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 MA: The stock is currently above its 50-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 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.
ARQT – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#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 ARQT is above the price of $4.00.
Target Prices: Our first target is $5.20. If it closes above that level, the second target price is $6.40.
Stop Loss: To limit risk, place a stop loss at $3.30. Note that the stop loss is on a closing basis.
Our target potential upside is 30% to 60%.
For a risk of $0.70, our first target reward is $1.20, and the second target reward is $2.40. 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 increasing net losses. ARQT’s net loss for the year ended December 31, 2022, was approximately $311.5 million. As of December 31, 2022, the company had an accumulated deficit of $719.8 million.
ARQT – Consolidated Statements of Operations and Comprehensive Loss
- ARQT is an early commercial-stage biopharmaceutical company with a limited operating history and a single product approved for commercial sale, making it difficult to assess its future viability.
- Despite being a loss-making company, the executives are being paid significant compensation.
ARQT – Executive Compensation
- The markets for dermatological therapies are competitive and are characterized by significant technological development and new product introduction. Several companies are working to develop drugs that would compete against ZORYVE or ARQT’s product candidates for the treatment of psoriasis, atopic dermatitis, chronic hand eczema, vitiligo, and alopecia areata. For psoriasis, ARQT’s primary competitors include injected biologic therapies such as Humira, marketed by AbbVie Inc. and Eisai Co., Ltd., and Enbrel, marketed by Amgen Inc.; Pfizer Inc., and Takeda Pharmaceutical Company Limited; non-injectable systemic therapies such as Otezla, marketed by Amgen Inc. and Sotyktu, marketed by Bristol Myers Squibb, etc.
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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