Trade This $5 Stock for 65% Upside Potential

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: Recursion Pharmaceuticals, Inc. (NASDAQ: RXRX)

Today’s penny stock pick is the clinical-stage biotech company, Recursion Pharmaceuticals, Inc. (NASDAQ: RXRX).

Recursion Pharmaceuticals, Inc. operates as a clinical-stage biotechnology company, engages in the decoding biology and chemistry by integrating technological innovations across biology, chemistry, automation, data science, and engineering to industrialize drug discovery in the United States.

The company develops REC-994, which is in Phase 2 clinical trial to treat cerebral cavernous malformation; REC-2282, which is in Phase 2/3 clinical trial for the treatment of neurofibromatosis type 2; REC-4881, which is in Phase 1b/2 clinical trial to treat familial adenomatous polyposis; REC-3964, which is in Phase 1 clinical trial to treat Clostridioides difficile infection; and REC-4881, which is in Phase 2 clinical trial to treat AXIN1 or APC mutant cancers.

Its preclinical stage product includes RBM39 to treat HR-proficient ovarian cancer. The company has collaboration and agreement with Bayer AG; the University of Utah Research Foundation; Ohio State Innovation Foundation; Roche & Genentech; and Takeda Pharmaceutical Company Limited.

Website:  https://www.recursion.com/

Latest 10-K report:  https://ir.recursion.com/static-files/bf1dc9f9-4b3d-42ec-b8f3-875498be893f

Analyst Consensus: As per TipRanks Analytics, based on 6 Wall Street analysts offering 12-month price targets for RXRX in the last 3 months, the stock has an average price target of $7.75, which is nearly 66% upside from current levels.

Potential Catalysts / Reasons for the Hype:

• P. Morgan recently upgraded RXRX to Overweight from Neutral, citing a blockbuster sales potential for the company’s lead asset, REC-4881. REC-4881, for which a mid-stage trial is currently underway for a genetic condition called familial adenomatous polyposis (FAP), is anticipated to generate more than $1B in peak sales in the U.S. alone, with a 60% probability of success.
• The company has generated over $500 million in milestone payments from collaborations with several major pharmaceutical companies, including Roche/Genentech, Sanofi, Bayer, Takeda, and Merck, as part of a business model where Recursion uses its AI-driven drug discovery platform to identify potential drug candidates and then partners with larger pharmaceutical companies to develop and commercialize them.
• Hedge Funds Increased Holdings by 556.9K Shares Last Quarter.
  

  Hedge Funds | Source: TipRanks.com

• The company’s recent acquisitions like Exscientia merger, REV102/REC-102 for hypophosphatasia strengthens its position in AI drug discovery.
• There are recent speculations on short squeezes and institutional accumulation.

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.

#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 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.

#4 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.

#5 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 RXRX 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 $7.00.

Stop Loss: To limit risk, place a stop loss at $4.40. Note that the stop loss is on a closing basis.

Our target potential upside is 22% to 40%.

For a risk of $0.60, our first target reward is $1.10, and the second target reward is $2.00. 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:

1. The company has a history of net losses. RXRX has an accumulated deficit of $1.4 billion as of December 31, 2024.
   

   RXRX – Consolidated Statements of Operations

2. The company has been reporting widening losses and has a high R&D spend.
3. The Biotech sector has an inherent volatility. There is also significant competition from big pharma AI players, and skepticism on AI’s real-world impact.
4. RXRX has no products approved for commercial sale and has not generated any revenue from product sales.
5. Despite being a loss-making company, the executives are being paid significant compensation.
   

   RXRX – 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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