Wall Street has mixed feelings about penny stocks. These tickers changing hands for less than $5 per share either draw investors in with their high return potential or send them running for the hills, but why?
When we say high return potential, we aren’t exaggerating. The bargain price points allow investors to snap up more shares than possible when investing in other more well-known names. What’s more, even what feels like trivial share price appreciation can translate to massive percentage gains.
That said, there’s a legitimate reason some investors are wary when it comes to penny stocks. The risk involved with these plays scares off the faint hearted as very real problems like weak fundamentals or overwhelming headwinds could be masked by the low share prices.
So, how should investors approach a potential penny stock investment? By taking a cue from the analyst community. These experts bring in-depth knowledge of the industries they cover and substantial experience to the table.
Bearing this in mind, we used TipRanks’ database to find two compelling penny stocks, according to Wall Street analysts. Both tickers boast a Strong Buy consensus rating and bring massive growth prospects to the table. We’re talking about over 200% upside potential here.
We will start with Cybin, a biopharmaceutical company with a focus on mental health. The company works with psychedelic therapeutics to develop new treatment for depression, anxiety, and addictive disorders. Cybin has 14 patent filings to its credit, covering novel psychedelic compounds, drug delivery mechanisms, and a drug discovery pipeline of novel tryptamines and phenethylamines. Cybin has completed over 50 pre-clinical studies, and now has a few active pipeline projects, targeting major depressive disorder, anxiety disorders and alcohol addiction.
In its development program, Cybin is following a ‘3 pillar’ strategy. The company is using a combination of a novel drug discovery platform, proprietary drug delivery systems, and an innovative treatment regimen to improve the efficacy of mental health treatments. The leading candidate in the pipeline, CYB001, is a proposed treatment for major depressive disorder. The drug is a psilocybin derivative administered through a sublingual film – that is, a dissolving film that is placed under the tongue; there are no pills to swallow or injections to take. The drug candidate is currently undergoing Phase IIA and Phase IIB clinical trials. The first is an open-label BE study, and the second is a double-blind placebo controlled study of dose escalation and safety, with 80 patients on the drug and 40 on the placebo. Results are expected by the middle of next year.
CYBN also has deuterated tryptamines CYB003 and CYB004 in its preclinical pipeline, which it is developing for alcohol-use disorder and anxiety, respectively. First-in-human studies are on track for early 2022.
Currently going for $2 apiece, several members of the Street believe Cybin's share price presents an attractive entry point.
Among the fans is Oppenheimer analyst Francois Brisebois, who rates CYBN an Outperform (i.e., Buy), and his $7 price target indicates confidence in a 265% upside potential for the stock. (To watch Brisebois’ track record, click here)
Brisebois describes the company as ‘a differentiated and scalable biotech psychedelic play,’ and writes, “As the psychedelic field is gaining steam of late, we are encouraged by CYBN's biotech approach to drug development and its potential ability to overcome significant scalability issues in the space. In fact, we see its innovative drug delivery systems and novel formulation approaches as key to long-term competitive positioning."
Leone adds, in regards to the market opportunity, "We believe psychedelics have gained significant interest in the investment community based on the enormous size of the market opportunity. With about 7% of the US population suffering from MDD and ~65% treated for symptoms, a conservative assumption that only 10% of patients would be eligible for psychedelic therapy still leads us to conservative peak sales above $1.3B with only 5% market penetration."
Turning now to the rest of the Street, other analysts are on the same page. With only Buys assigned in the last three months, 4 to be exact, the word on the Street is that CYBN is a Strong Buy. Additionally, the $8 average price target brings the upside potential to 300%. (See CYBN stock analysis on TipRanks)
Aquestive Therapeutics (AQST)
The second stock we’ll look is Aquestive Therapeutics, another penny-valued biotech company. Aquestive has a wide-ranging product line, with drug candidates in both preclinical and clinical phases of development as well as fully approved products available on the market. Aquestive bases its medications – both approved and in development – on an oral film delivery system. The film can be used in several locations around the mouth, including on and under the tongue and on the inside of the cheek.
Aquestive has four medications approved for use and on the market. The drugs, which include suboxone, zuplenz, kynmobi, and exservan, are used to treat a wide range of conditions. Suboxone is an opioid, indicated to treat chronic pain and/or opiate addiction; zuplenz treats nausea secondary to chemotherapy. Kynmobi is used in treatment symptoms of Parkinson’s disease, and exservan is a treatment for the degenerative nervous system disorder ALS. In 2Q21, Aquestive realized over $15.3 million in revenues, primarily from its line of approved drugs. While down from the $21.6 million reported in 2Q20, it was the highest revenue number of the last four quarters, and the second quarter in a row of increasing revenue.
The clinical studies include Phase 1 trials of AQST-108 and AQST-109, two epinephrine treatments for severe allergic reactions, including anaphylactic shock. The study of AQST-109 is ongoing in Canada, and top line results are expected before the end of this year. The study of AQST-108 is being held in the US, and the company will be meeting with the FDA before the end of this year to discuss further steps.
Aquestive saw some headlines last year, when it’s drug candidate Libervant, a diazepam formulation used in seizure treatment, had its New Drug Application (NDA) rejected by the FDA. After providing additional statistical and clinical data to the regulatory agency, Aquestive announced in July that the NDA was accepted for another review, with a PDUFA action date of December 23.
BMO analyst Gary Nachman describes the company as ‘evolving,’ from a development researcher into a commercialization company, and notes the pending approval of Libervant as a key catalyst.
“We remain optimistic about Libervant prospects in refractory seizures despite CRL with approval/launch expected 2021-22... AQST has been engaged with FDA on Libervant NDA in variety of ways. This includes mid-cycle review last week with just some minor CMC questions related to dose requirements (cutting different size doses), post-marketing AE reporting capability inspection by FDA that is finishing up (no issues since pharmacovigilance already in place with Sympazan), update on IP citings likely for OB listing, and approval of drug's trade name," Nachman wrote.
In line with these comments, Nachman rates the stock an Outperform (i.e. Buy), and sets a price target of $13, which indicates potential for 206% upside in the year ahead. (To watch Nachman’s track record, click here)
Once again, we’re looking at a stock with a unanimous Strong Buy consensus rating, this one based on 5 positive reviews filed in recent weeks. Aquestive’s share price is $4.24, and the $15.50 average price target suggests it has an upside potential of ~264% from that level. (See AQST stock analysis on TipRanks)
To find good ideas for penny stocks stocks trading at attractive valuations, visit TipRanks’ Penny Stocks Screener.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.