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: Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX)
Today’s penny stock pick is the biopharmaceutical company, Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX).
Lexicon Pharmaceuticals, Inc. focuses on the discovery, development, and commercialization of pharmaceutical products. Its orally-delivered small molecule drug candidates under development comprise Sotagliflozin which completed Phase III clinical trials for the treatment of heart failure and type 1 diabetes; LX9211, which is in Phase II clinical development for the treatment of neuropathic pain and LX2761, which is in Phase I clinical development for gastrointestinal tract. The company has strategic collaboration and license agreements with Bristol-Myers Squibb Company, and Genentech, Inc. The company was incorporated in 1995 and is headquartered in The Woodlands, Texas.
Website: https://www.lexpharma.com
Latest 10-k report: https://www.sec.gov/ix?doc=/Archives/edgar/data/1062822/000106282223000007/lxrx-20221231.htm
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for LXRX in the last 3 months, the stock has an average price target of $7.00, which is nearly 305% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Corporate Insiders placed Informative Buys of Shares Worth $304.6K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Rumors of a buyout.
- Anticipation of higher revenue in the upcoming quarters from the company’s heart failure drug Inpefa, which was approved by the U.S. Food and Drug Administration (FDA) this past May. Excitement is also building over LX9211, the company’s late-stage experimental therapy targeting patients with diabetic peripheral neuropathic pain.
- The company has also been showing some unusual options trading activity recently.
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.
LXRX – 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.
LXRX – 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 LXRX is above the price of $1.80.
Target Prices: Our first target is $2.80. If it closes above that level, the second target price is $3.50.
Stop Loss: To limit risk, place a stop loss at $1.30. Note that the stop loss is on a closing basis.
Our target potential upside is 56% to 94%.
For a risk of $0.50, our first target reward is $1.00, and the second target reward is $1.70. 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 aggregate net losses since its inception, including an aggregate net loss of $248.3 million for the three years ended December 31, 2022. As of December 31, 2022, the company had an accumulated deficit of $1.6 billion.
LXRX – Consolidated Statements of Comprehensive Loss
- The company currently does not have sufficient capital to support a full Phase 3 development program for LX9211 in neuropathic pain and will be reliant on obtaining financing in support from alternative sources. Such financing may not be available in amounts or on acceptable terms. Consequently, the company may be required to reduce the scope of any such Phase 3 development program.
- Hedge Funds Decreased Holdings by 523.4K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
LXRX – 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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