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: Lexaria Bioscience Corp. (NASDAQ: LEXX)
Today’s penny stock pick is the biotechnology company, Lexaria Bioscience Corp. (NASDAQ: LEXX).
Lexaria Bioscience Corp. develops and out-licenses its patented drug delivery technology, DehydraTECH, which combines lipophilic molecules or active pharmaceutical ingredients with specific long-chain fatty acids and carrier compounds that improve the way they enter the bloodstream, increasing their effectiveness and allowing for lower overall dosing while promoting healthier oral ingestion methods. The company’s DehydraTECH is used with a range of active molecules encompassing fat-soluble vitamins, pain medications, hormones, PDE5 inhibitors, antivirals, oral nicotine and its analogs, and cannabinoids. Its DehydraTECH technology evaluates therapeutic indications, including hypertension, heart disease, and diabetes; and is suitable for a variety of product formats, such as pharmaceuticals, nutraceuticals, over the counter, and consumer packaged goods.
Website: https://lexariabioscience.com
Latest 10-k report: https://ir.lexariabioscience.com/sec-filings/all-sec-filings/content/0001640334-23-002227/0001640334-23-002227.pdf
Analyst Consensus: As per TipRanks Analytics, based on 2 Wall Street analysts offering 12-month price targets for LEXX in the last 3 months, the stock has an average price target of $11.00, which is nearly 181% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company recently announced positive results from a human pilot study of its DehydraTECH-processed Rybelsus® capsules. The tablets were noted to have improved tolerability compared to commercially available Rybelsus® tablets.
- Almost half of the company is owned by insiders, indicating their confidence in the company.
Ownership | Source: TipRanks.com
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.
LEXX – 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 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. The stock is also trading above its 50-week and 200-week SMA, indicating that the bulls are gaining control.
LEXX – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, 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 LEXX is above the price of $4.10.
Target Prices: Our first target is $4.80. If it closes above that level, the second target price is $5.40.
Stop Loss: To limit risk, place a stop loss at $3.70. Note that the stop loss is on a closing basis.
Our target potential upside is 17% to 32%.
For a risk of $0.40, our first target reward is $0.70, and the second target reward is $1.30. 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. LEXX’s net loss from operations for the year ended August 31, 2023, was $6,712,525. The company’s net loss was $7,383,653 in 2022.
LEXX – Consolidated Statements of Operations
- All of the company’s R&D programs are in the preclinical development stage and LEXX’s future success heavily depends on the successful development of its DehydraTECH product candidates. Pharmaceutical products incorporating DehydraTECH have never been approved for the treatment of disease to date.
- Corporate Insiders placed Informative Sells of Shares Worth $5.3K in the Last 3 Months.
Insiders | Source: TipRanks.com
- Despite being a loss-making company, the executives are being paid significant compensation.
LEXX – 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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