We recently started a series called “Penny Stock of the Day”. These ideas are geared for 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: Benitec Biopharma Inc. (NASDAQ: BNTC)
Today’s penny stock pick is the Australian biotechnology company, Benitec Biopharma Inc. (NASDAQ: BNTC).
Benitec Biopharma Inc. focuses on the development of novel genetic medicines. The company develops DNA-directed RNA interference based therapeutics for chronic and life-threatening human conditions. It is developing BB-301, an adeno-associated virus based gene therapy agent for treating oculopharyngeal muscular dystrophy and chronic hepatitis B virus infection.
Website: https://benitec.com/
Latest 10-k report: https://sec.report/Document/0001193125-20-252381/
Analyst Consensus: Not covered by analysts.
Potential Catalysts / Reasons for the Hype:
- The news about Morgan Stanley acquiring a 5.2% stake in the company. Morgan Stanley disclosed in the 13G filing that it now owned 249,174 shares in Benitec, compared to about 13,100 earlier.
- No other catalysts have been found for the stock.
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 was forming a falling wedge pattern for the past several months. These are marked as pink color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out of the falling wedge pattern, indicating possible bullishness.
BNTC – 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 has started to move higher from below the +DI and -DI lines.
#3 Price above MAs: The stock is currently above its 50-day as well as 200-day SMA, indicating that the bulls are now gaining 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. This has been marked as an orange color dotted line. This is a possible bullish sign.
BNTC – Weekly Chart
#6 Bullish Stoch: In the weekly chart, the %K line is above the %D line of the stochastic, and is also moving higher from oversold levels. This indicates a possible bullish setup.
#7 Bullish RSI: The RSI is currently moving higher from oversold levels and is almost near 50, indicating the strength of the current upmove.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for BNTC is above the price of $4.30.
Target Prices: Our target prices are $5.50 and $7.00.
Stop Loss: To limit risk, place a stop loss at $3.55. Note that the stop loss is on a closing basis.
Our target potential upside is 28% to 63%.
For a risk of $0.75, our first target reward is $1.20, and the second target reward is $2.70. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Potential Risks / Red Flags:
- The company had reported a significant decline in revenue year-over-year. The company’s net loss was $8.28 million for the year ended June 30, 2020, when compared to the net income of $2.61 million for the year ended June 30, 2019.
BNTC – Consolidated Statements of Operations and Comprehensive Income (Loss)
- BNTC has been down by nearly 99% since its IPO in August 2015.
- The company executives are drawing good compensation despite the company’s declining revenues and increasing losses.
BNTC – Executive Compensation
- In the fiscal year ended June 30, 2020, the Company generated funds primarily from capital raising activities. The Company has not generated any revenues from the sales of products. The company has also lost out on the grant revenue from the Australian government due to the Re-domiciliation of Benitec to the United States of America.
- The company notes in its annual report that significant additional capital will be needed in the future to continue the company’s planned operations. To raise capital, the company may sell common stock or other securities convertible into or exchanged for the company’s common stock in one or more transactions. This could result in substantial dilution to the company’s stockholders.
- Changes in U.S. patent law could diminish the value of patents in general, thereby impairing the company’s ability to protect our product candidates.
- Due to the financial crunch, the company had to reduce the workforce by approximately 50%. Benitec announced the completion of this workforce reduction on July 31, 2019.
- The company has terminated the agreement with Axovant Sciences, which had granted Axovant an exclusive worldwide license to develop, manufacture, and commercialize products containing the Company’s product known as BB-301. Calling off this deal resulted in a significant reduction in revenue for the company.
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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