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: Sellas Life Sciences Group Inc. (NASDAQ: SLS)
Today’s penny stock pick is the late-stage biopharmaceutical company, Sellas Life Sciences Group Inc. (NASDAQ: SLS).
Sellas Life Sciences Group Inc. focuses on the development of novel cancer immunotherapies for various cancer indications in the United States. Its lead product candidate is galinpepimut-S (GPS), a cancer immunotherapeutic agent that targets Wilms tumor 1, which is in Phase III clinical trials for the treatment of acute myeloid leukemia; and in Phase 1/2 clinical trials for the treatment for ovarian cancer.
The company also develops nelipepimut-S, a cancer immunotherapy that targets human epidermal growth factor receptor 2, which is in Phase 2b clinical trials for the treatment of early-stage breast cancer. It has a strategic collaboration with Merck & Co., Inc. to evaluate GPS as it is administered in combination with PD1 blocker pembrolizumab in a Phase 1/2 clinical trial enrolling patients in up to five cancer indications, including hematologic malignancies and solid tumors.
Website: https://www.sellaslifesciences.com
Latest 10-k report: https://sec.report/Document/0001390478-22-000006/
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for SLS in the last 3 months, the stock has an average price target of $10.00, which is nearly 114% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors that the company’s ongoing Phase 3 REGAL clinical trial of GPS in patients with AML will be extremely positive. The company has scheduled an update call on 11/14.
- Expectations regarding FDA approval of GPS.
On analyzing the company’s stock charts, there seem to be multiple bullish indications…
Bullish Indications
#1 Breakout From Consolidation Area: The daily chart shows that the stock has currently broken out a consolidation area, which is marked as a purple color rectangle. This usually signifies the start of a new bullish trend.
SLS – 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 MAs: The stock is currently above its 50-day as well as 200-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. The stock is also above its 50-day SMA, indicating that the bulls are gaining control.
SLS – 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 SLS is above the price of $4.80.
Target Prices: Our first target is $7.00. If it closes above that level, the second target price is $9.00.
Stop Loss: To limit risk, place a stop loss at $3.50. Note that the stop loss is on a closing basis.
Our target potential upside is 46% to 88%.
For a risk of $1.30, our first target reward is $2.20, and the second target reward is $4.20. 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 has a history of net losses. For the years ended December 31, 2021, and 2020, SLS reported a net loss of $20.7 million and $16.8 million, respectively. As of December 31, 2021, and 2020, the company had an accumulated deficit of $138.6 million and $117.9 million, respectively.
SLS – Consolidated Statements of Operations
- In 2021, the company settled the following litigation:
- Certain putative shareholder securities class action complaints originally filed against the company’s predecessor, Galena, in 2017 which alleged, among other things, that Galena and certain of Galena’s former officers and directors failed to disclose that certain of Galena’s promotional practices were allegedly improper and that these alleged failures rendered Galena’s statements about its business misleading. The actions were consolidated with lead plaintiffs named by the U.S. District Court for the District of New Jersey. In 2021, SLS reached a settlement with the plaintiffs in this action, and received final court approval on February 24, 2022.
- In March 2017, a derivative complaint was filed in the U.S. District Court for the District of New Jersey against Galena’s former directors and Galena, as a nominal defendant. In July 2017, a derivative complaint was filed in California state court against Galena’s former directors and Galena, as a nominal defendant. In January 2018, a derivative complaint was filed in the U.S. District Court for the District of New Jersey against Galena’s former directors, officers and employees, and SLS as a nominal defendant. SLS reached a settlement with the plaintiffs in these three cases which was approved by the U.S. District Court for the District of New Jersey on November 19, 2021, and covered by the company’s directors and officers’ insurance policy applicable to these cases.
- In the past, SLS had received a letter from Nasdaq indicating that it did not meet the minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to the Minimum Bid Price Rule.
- Despite being a loss-making company, the executives are being paid significant compensation.
SLS – Executive Compensation – Summary Compensation Table
- The company does not generate any revenues from product sales or otherwise. SLS is expected to expend substantial resources for the foreseeable future to continue the clinical development and manufacturing of GPS, in particular, the Phase 3 study of GPS in AML. The company’s cash and cash equivalents balance as of December 31, 2021, will be able to fund its operations for less than one year. The company would need to raise additional capital in order to continue its operations as currently planned.
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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