Tuesday’s TSX breakouts: This stock has a potential near-term catalyst, 47% upside forecast

On Monday, North American equity markets closed lower.

Today, the price of oil giving back much of its 3-per-cent gain from Monday, which may put pressure on stock markets.

To recap, on Monday, in the U.S., the Dow Jones Industrial Average declined 0.91 per cent, the S&P 500 Index fell 0.86 per cent, and the Nasdaq composite index dropped 0.91 per cent.

In Canada, the S&P/TSX composite index lost 78 points, or 0.53 per cent to close at 14,619. Only the telecom sector closed higher, the other 10 of the 11 sectors in the index declined in value. In terms of stocks, there were 55 securities in the TSX Index that advanced, 185 securities declined in value, and six stocks closed the day unchanged.

The S&P/TSX composite index is relatively unchanged month to date, up just 0.15 per cent, quarter to date the index is up 3.95 per cent, and the index has a gain of 12.37 per cent year to date.

Today's TSX Breakouts report is very short. There are just 16 securities on the positive breakouts list (stocks with positive price momentum, and 18 securities on the negative breakouts list (stocks with negative price momentum).

I try to appeal to a variety of investors. Discussed today is a stock that can be extremely volatile and as such is only suitable for growth investors with a high risk tolerance within a diversified portfolio. On Monday, the stock briefly appeared on the positive breakouts list intraday before slipping. The share price rallied nearly 3 per cent, and is just three cents shy of appearing on the positive breakouts list. The stock is covered by three analysts – all of whom have 'speculative' buy recommendations on the stock given its risk profile. The stock has a potential near-term catalyst that may continue to fuel its positive price momentum. The security highlighted today is Spectral Medical Inc. (EDT-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Spectral is seeking U.S. Food and Drug Administration approval for its product, Toraymyxin (PMX), aimed at treating individuals suffering from severe sepsis and septic shock. PMX was approved for use in Europe in 2001 and in Japan in 1994. Spectral has the exclusive commercial rights for PMX in the United States and Canada. In terms of market potential, more than one million individuals in the United States are diagnosed with sepsis each year, with one-third of patients advancing to severe sepsis and septic shock.

In a news release from August 18, Paul Walker, the president and chief executive officer, stated, "We are eagerly awaiting the results of our clinical trial, which was designed to show a significant reduction in the mortality of patients with endotoxemic septic shock. Pending satisfactory results, we would expect to proceed with completion of our regulatory filings in the fourth quarter as we seek approval for our targeted treatment which is guided by a diagnostic." In terms of timing, he went on to say, "If approved, this treatment could be available to patients by as early as the first half of 2017."

Dividend policy

The company does not pay its shareholders a dividend.

Valuation

The stock is trading at a price-to-earnings multiple of 11 times the 2018 consensus estimate.

Analysts' recommendations

According to Bloomberg, this small-cap stock with a market capitalization of approximately $387-million, has three analysts whom cover the company, all of whom have 'speculative' buy recommendations. The three firm providing research coverage are Cormark Securities, GMP, and Mackie Research Capital. The average one-year target price is $2.75, which implies 47 per cent upside potential over the next 12 months. The three target prices in numerical order are as follows: $1.50, $2.50, and $3.

The consensus revenue estimate is $3.3-million in 2016, and is forecast to jump to $27.5-million in 2017. The company is anticipated to be profitable, reporting positive earnings in 2018.

Chart watch

Year to date, the share price has more than doubled in value. Furthermore, the share price has experienced a parabolic move, rising 47 per cent on September 20 on high volume with over 2.2-million shares traded. The historical two month average daily trading volume is just over 300,000 shares. That day, the company issued a news release indicating that they are not aware of any developments that would warrant such extreme price move.

The relative strength index now stands at 79, suggesting the shares are in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.

The shares appear to be forming a bullish pennant formation. This occurs after a sharp move higher, followed by a consolidation period, after which there is a resumption of the underlying uptrend.

In terms of downside risk, negative news could send the share price back down to the $1.50 level, a 50 per cent retracement of its recent rally. There is additional downside support around $1.20, which is near its 50-day moving average (at $1.21).

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.