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: Mereo BioPharma Group plc (NASDAQ: MREO)
Today’s penny stock pick is the clinical-stage biopharma company, Mereo BioPharma Group plc (NASDAQ: MREO).
Mereo BioPharma Group plc develops and commercializes therapeutics for the treatment of oncology and rare diseases in the United Kingdom, the United States, and internationally. It develops Etigilimab, an antibody T-cell immunoreceptor with Ig and ITIM domains, which is in Phase 1b clinical trial for use in the treatment of tumors.
The company is also developing Navicixizumab, which has completed Phase 1b clinical trials for the treatment of the late line ovarian cancer; Acumapimod, a p38 MAP kinase inhibitor that is in Phase II clinical trials to treat acute exacerbations of chronic obstructive pulmonary disease; and Leflutrozole, an oral aromatase inhibitor, which is in Phase 2 trials for use in the treatment of hypogonadotropic hypogonadism.
In addition, it develops rare disease product candidates, including Setrusumab, an antibody for the treatment of osteogenesis imperfecta; and Alvelestat, an oral small molecule that is in Phase II clinical trial to treat Alpha-1 anti-trypsin deficiency. The company has a license agreement with Feng Biosciences for the development and commercialization of navicixizumab; license agreement with ReproNovo for the development and commercialization of leflutrozole; and licensing agreement with AstraZeneca.
Website: https://www.mereobiopharma.com/
Latest 10-K report: https://mereobiopharma.gcs-web.com/static-files/c5059d51-c38e-44ff-aac1-c53cb8a27a1e
Analyst Consensus: As per TipRanks Analytics, based on 3 Wall Street analysts offering 12-month price targets for MREO in the last 3 months, the stock has an average price target of $6.67, which is nearly 191% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- Rumors of imminent Phase 3 readout for the Phase 3 Orbit and Cosmic studies evaluating setrusumab. The company’s rare disease focus aligns with regulatory incentives (orphan status), and potential pricing for setrusumab could be at $200K+ annually if approved.
- The company has partnered with Ultragenyx, which handles the bulk of development costs and provides a clear path to commercialization. There is speculation that Ultragenyx might eventually acquire Mereo outright to own 100% of the setrusumab royalties, especially if the Phase 3 data is stellar.
- Potential initiation of the Phase 3 trial for alvelestat (AATD-lung disease) in Q1 2026. Alvelestat received a positive opinion from the EMA Committee for Orphan Medicinal Products in January 2025 and is expected to receive formal European Orphan Designation in Q1 2025, improving its regulatory and commercial prospects.
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.
MREO – 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 SMA, indicating that the bulls are gaining control.
MREO – Weekly Chart
#6 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart, indicating possible bullishness.
#7 MACD above Signal Line: In the weekly chart as well, 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 MREO is above the price of $2.35.
Target Prices: Our first target is $3.30. If it closes above that level, the second target price is $4.00.
Stop Loss: To limit risk, place a stop loss at $1.80. Note that the stop loss is on a closing basis.
Our target potential upside is 40% to 70%.
For a risk of $0.55, our first target reward is $0.95, and the second target reward is $1.65. 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.
MREO – Consolidated Statements of Operations
- The company reported Q3 2025 net loss of $7M, with R&D expenses up to $4.3M. These ongoing losses could necessitate dilution via equity raises if milestones slip.
- Hedge Funds Decreased Holdings by 6.7M Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- The company is heavily dependent on setrusumab Phase 3 success and alvelestat.
- MREO has a limited operating history and has never generated any revenue from product sales.
- Despite being a loss-making company, the executives are being paid significant compensation.
MREO – 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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