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: Decibel Therapeutics Inc. (NASDAQ: DBTX)
Today’s penny stock pick is the clinical-stage biotechnology company, Decibel Therapeutics Inc. (NASDAQ: DBTX).
Decibel Therapeutics Inc. engages in discovering and developing transformative treatments for hearing and balance disorders. Its product candidates and programs focuses on three areas, such as Gene Therapies for Congenital, Monogenic Hearing Loss designed to restore functional cells within the cochlea to address hearing disorders caused by single gene mutations; Gene Therapies for Hair Cell Regeneration designed to replace lost hair cells within the inner ear to address acquired hearing loss and balance disorders; and Otoprotection Therapeutic in clinical development to prevent hearing loss in cancer patients undergoing chemotherapy with cisplatin.
The company’s lead gene therapy product candidate is DB-OTO to provide hearing to individuals born with profound hearing loss due to mutation of the otoferlin gene.
It is also developing DB-ATO and AAV.201, a gene therapy program designed to restore balance in patients with bilateral vestibulopathy by regenerating lost hair cells within the vestibule; DB-020 for the prevention of cisplatin-induced hearing loss, which is in Phase 1b clinical trial; AAV.103 to restore hearing in individuals with a gap junction beta-2 (GJB2) deficiency; AAV.104 to restore hearing in individuals with stereocilin (STRC) deficiency; and cochlear hair cell regeneration program, an AAV-based gene therapy that utilizes cell-selective expression of reprogramming factors to convert supporting cells into outer hair cells.
Decibel Therapeutics, Inc. has a strategic collaboration with Regeneron Pharmaceuticals, Inc. to develop gene therapies for monogenic forms of congenital hearing loss.
Website: https://www.decibeltx.com
Latest 10-k report: https://sec.report/Document/0000950170-22-004130
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for DBTX in the last 3 months, the stock has an average price target of $18.25, which is nearly 378% upside from current levels.
Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company reported positive top-line results from an interim analysis of its ongoing Phase 1b clinical trial of DB-020, a novel, proprietary formulation of sodium thiosulfate (STS) designed to protect against hearing loss in cancer patients receiving cisplatin chemotherapy.
- C. Wainwright analyst reiterated a ‘Buy’ rating and set a price target of $23.00 for the stock.
Analysts | Source: TipRanks.com
- Regeneron had extended the research term of its collaboration with DBTX to discover and develop gene therapies for hearing loss.
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.
DBTX – 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#6 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 is a possible bullish indication.
DBTX – Weekly Chart
#7 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#8 MACD above Signal Line: In the weekly chart, 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 DBTX is above the price of $3.90.
Target Prices: Our first target is $4.80. If it closes above that level, the second target price is $5.50.
Stop Loss: To limit risk, place a stop loss at $3.35. Note that the stop loss is on a closing basis.
Our target potential upside is 23% to 41%.
For a risk of $0.55, our first target reward is $0.90, and the second target reward is $1.60. 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 net losses. DBTX’s net losses were $51.8 million and $39.3 million for the years ended December 31, 2021, and 2020, respectively. As of December 31, 2021, DBTX had an accumulated deficit of $214.5 million.
DBTX – Consolidated Statements of Operations and Net Loss
- The company was formerly known as Hearing Inc. and changed its name to Decibel Therapeutics, Inc. in April 2014.
- Despite being a loss-making company, the executives are being paid significant compensation.
DBTX – 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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