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: Atai Life Sciences N.V. (NASDAQ: ATAI)
Today’s penny stock pick is the clinical-stage biopharmaceutical company, Atai Life Sciences N.V. (NASDAQ: ATAI).
Atai Life Sciences N.V. develops and invests in various therapeutics to treat depression, anxiety, addiction, and other mental health disorders. Its product candidates include COMP360, a proprietary psilocybin which is in Phase 3 program; BPL-003, an intranasal formulation that is in Phase 2a and 2b clinical studies; TRD; VLS-01, an transmucosal film in Phase 1b clinical studies; and ELE-101, a serotonergic psychedelic that is in Phase 1/2a study, for the treatment of treatment resistant depression.
The company also develop IBX-210, an intravenous formulation of ibogaine, and DMX-1002, an oral formulation of ibogaine indicated for the treatment of opioid use disorder; EMP-01, an oral formulation of an R-MDMA derivative being developed for the treatment of post-traumatic stress disorder; and EGX-A and EGX-B, psychedelic-like with novel, non-tryptamine structures with differentiated 5-HT receptor pharmacology.
In addition, it offers RL-007, an orally bioavailable compound, which is a pro-cognitive neuromodulator for cognitive impairment associated with schizophrenia; and GRX-917, a deuterated etifoxine for the treatment of generalize anxiety disorder. Further, the company develops PCN-101, a subcutaneous formulation of R-ketamine, as a therapy for psychiatric indications initially focused on TRD; KUR-101, a formulation of deuterated mitragynine for the treatment of OUD; and RLS-01, indicated for treatment resistant depression.
Website: https://www.atai.life/
Latest 10-k report: https://ir.atai.life/static-files/46fe4570-d7ba-490c-b062-70e83afc45f7
Analyst Consensus: As per TipRanks Analytics, based on 4 Wall Street analysts offering 12-month price targets for ATAI in the last 3 months, the stock has an average price target of $10.67, which is nearly 539% upside from current levels.
Analysts | Source: TipRanks.com
Potential Catalysts / Reasons for the Hype:
- The company is expecting a slew of Phase 2 and 3 data readouts in 2025 from across its pipeline of innovative psychedelic therapies.
- The regulatory sentiment towards psychedelics may improve under the forthcoming Trump administration, notably, should Robert F Kennedy Jr be appointed to drive health policy.
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 has been forming a falling wedge pattern for the past several months. These are marked as purple color lines. It has typically taken support at the bottom of the wedge before bouncing back. The stock has currently broken out from the falling wedge pattern. Once the stock breaks out of the falling wedge pattern, it could move higher.
ATAI – 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 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30. This indicates bullishness.
#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 is a possible bullish indication.
ATAI – 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, 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 ATAI is above the price of $1.70.
Target Prices: Our first target is $3.00. If it closes above that level, the second target price is $4.50.
Stop Loss: To limit risk, place a stop loss at $0.90. Note that the stop loss is on a closing basis.
Our target potential upside is 76% to 165%.
For a risk of $0.80, our first target reward is $1.30, and the second target reward is $2.80. 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.
ATAI – Results of Operations
- The company has no products that are approved for commercial sale and has not generated any commercial product revenue to date. All the product candidates are in preclinical or clinical development, which is a lengthy and expensive process with uncertain outcomes.
- Hedge Funds Decreased Holdings by 17.5K Shares Last Quarter.
Hedge Funds | Source: TipRanks.com
- One of ATAI’s principal shareholders has a significant holding in the company. As of December 31, 2023, Apeiron held a 19.7% interest in the Company. This may give them influence in certain matters requiring approval by shareholders, including approval of significant corporate transactions in certain circumstances.
- Despite being a loss-making company, the executives are being paid significant compensation.
ATAI – 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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Source: Trades of the Day