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: Emergent BioSolutions Inc. (NYSE: EBS)
Today’s penny stock pick is the life sciences company, Emergent BioSolutions Inc. (NYSE: EBS).
Emergent BioSolutions Inc. focuses on the provision of preparedness and response solutions that address accidental, deliberate, and naturally occurring public health threats (PHTs) in the United States. Its products address PHTs, which include chemical, biological, radiological, nuclear, and explosives; emerging infectious diseases; travel health; public health crises; and acute, emergency, and community care.
The company offers ACAM2000, a smallpox vaccine; Anthrasil to for inhalational anthrax; Botulism Antitoxin Heptavalent to treat botulinum disease; BioThrax, an anthrax vaccine; Ebanga, a monoclonal antibody to treat infection caused by Zaire ebolavirus; raxibacumab injection for the treatment of inhalational anthrax; reactive skin decontamination lotion kits; TEMBEXA for the treatment of human smallpox disease; Trobigard, an auto-injector atropine sulfate and obidoxime chloride auto-injector for the emergency treatment of known or suspected exposure to nerve agents; and vaccinia immune globulin intravenous that addresses complications from smallpox vaccine.
It also provides NARCAN, a nasal spray for the emergency treatment of known or suspected opioid overdose; Vivotif, an oral vaccine for typhoid fever; and Vaxchora, a single-dose oral vaccine to treat cholera. In addition, the company is developing AV7909, an anthrax vaccine; CGRD-001, a pralidoxime chloride/atropine auto-injector; CHIKV VLP, a chikungunya virus VLP vaccine; EBS-LASV; EGRD-001, a diazepam auto-injector; SIAN, an antidote for the initial treatment of acute poisoning of cyanide; and UniFlu, a universal influenza vaccine.
Further, it provides contract development and manufacturing services comprising drug substance and product manufacturing, and packaging, as well as technology transfer, process, and analytical development services.
Website: https://www.emergentbiosolutions.com
Latest 10-k report: https://investors.emergentbiosolutions.com/static-files/3f8c9027-a9a7-456f-befa-c6e61d284560
Analyst Consensus: As per TipRanks Analytics, based on 1 Wall Street analyst offering 12-month price targets for EBS in the last 3 months, the stock has an average price target of $5.00, which is nearly 85% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Emergent announced that Joseph Papa will be joining the company as its new CEO. Papa will replace interim CEO Haywood Miller. Papa is well-known for his recent role as CEO of Bausch + Lomb BLCO, after leading the turnaround effort at Bausch Health BHC and other endeavors in the biotech/eye care world.
- The company’s NARCAN® Naloxone HCl Nasal Spray 4 mg has been made available on shelves nationwide since September.
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 with a historic high volume. Once the stock breaks out of the falling wedge pattern, it could move higher.
EBS – 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.
EBS – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart as well, 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 EBS is above the price of $2.80.
Target Prices: Our first target is $3.50. If it closes above that level, the second target price is $4.00.
Stop Loss: To limit risk, place a stop loss at $2.40. Note that the stop loss is on a closing basis.
Our target potential upside is 25% to 43%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.20. 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 had reported a net loss of $223.8 million for the year ended December 31, 2022.
EBS – Consolidated Statements of Operations
- Hedge Funds Decreased Holdings by 757.3K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- Although the drug’s patent having expired three decades ago, Emergent had been making profits from Narcan sales over the past four years. However, the U.S. Department of Health and Human Services (HHS) and the General Services Administration (GSA) had recently announced new guidance recommending that all federal facilities across the nation include overdose reversal medications in their safety stations on site.
- The company has ongoing litigations.
- On April 20, 2021, May 14, 2021, and June 2, 2021, putative class action lawsuits were filed against the Company and certain of its current and former senior officers in the United States District Court for the District of Maryland on behalf of purchasers of the Company’s common stock, seeking to pursue remedies under the Securities Exchange Act of 1934.
- On June 29, 2021, Lincolnshire Police Pension Fund and on August 16, 2021, Pooja Sayal, filed putative shareholder derivative lawsuits in the United States District Court for the District of Maryland on behalf of the Company against certain of the Company’s current and former officers and directors for breach of fiduciary duties, waste of corporate assets, and unjust enrichment, each allegation related to the CDMO Manufacturing Capabilities.
- On September 15, 2021, September 16, 2021 and November 12, 2021, putative shareholder derivative lawsuits were filed by Chang Kyum Kim, Mark Nevins and Employees Retirement System of the State of Rhode Island, North Collier Fire Control and Rescue District Firefighters Pension Plan, and Pembroke Pines Firefighters & Police Officers Pension Fund, respectively, in The Court of Chancery of the State of Delaware on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duties, unjust enrichment and insider trading, each allegation related to the CDMO Manufacturing Capabilities.
- On December 3, 2021, December 22, 2021 and January 18, 2022, putative shareholder derivative lawsuits were filed by Zachary Elton, Eric White and Jeffrey Reynolds in the Circuit Court for Montgomery County, Maryland on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duty, unjust enrichment, waste of corporate assets, failing to maintain internal controls, making or causing to be made false and/or misleading statements and material omissions, insider trading and otherwise violating the federal securities laws, each allegation related to the CDMO Manufacturing Capabilities.
- The Company has also received inquiries and subpoenas to produce documents related to these matters from the Department of Justice, the SEC, the Maryland Attorney General’s Office, and the New York Attorney General’s Office.
- Despite being a loss-making company, the executives are being paid significant compensation.
EBS – Executive Compensation
- EBS currently derive a substantial portion of its revenue from USG procurement of the AV7909 vaccine and the TEMBEXA® (brincidofovir), oral antiviral and has historically derived a substantial portion of its revenue from USG procurement of the ACAM2000 vaccine and of BioThrax. If the USG’s demand for and/or funding for procurement of AV7909, BioThrax and/or ACAM2000 vaccines and/or TEMBEXA® (brincidofovir), oral antiviral are substantially reduced, the company’s business, financial condition, operating results and cash flows would be materially harmed
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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