Co-Diagnostics (NASDAQ:CODX) is having its moment in the sun. CODX stock is trading over 300% above its pre-correction level based on strong demand for the company’s CE-IVD Logix Smart Covid-19 test kits. At one point, the stock was above $21 per share.
The Covid-19 virus is being called a black swan event. I’m not sure it meets all the criteria. After all, this isn’t the first virus from China that the world has had to confront. But it is a disruptive event. The broader market is gyrating up and down daily. And the longer-term effects on the economy have yet to be determined.
Most of this is due to uncertainty. The uncomfortable fact remains that there are too many unknowns. And one of those unknowns is precisely how many people may have the virus.
That’s where Co-Diagnostics comes in. As InvestorPlace’s Luke Lango points out, as long as demand for test kits remains strong, sales will increase. And Co-Diagnostics is one of only a few companies making test kits.
CODX Stock Has a First-mover Advantage
CODX stock jumped 270% in the two trading days starting on Feb. 26. This was right when the broader market began its correction. That is making CODX stock a timely hedge against market volatility.
The company was one of the first to have test kits available and has already shipped to four continents. At first, the company could only send the kits outside of the United States due to Food and Drug Administration (FDA) regulations.
However, in an interview with Fox Business this morning, Co-Diagnostics CEO Dwight Egan announced that as of Feb. 29, the FDA had relaxed their regulations and are now allowing U.S. clinical laboratories to test patients for Covid-19 after in-house validation. The companies would still have to submit an Emerging Use Authorization (EUA) request.
According to Egan, the company can currently produce about 50,000 test kits per day. They expect to get that number up to 150,000 per day when a production facility in India goes online. “Our facility in that country stands to more than triple our manufacturing capacity for this test, especially important to meet potential demand in the eastern hemisphere,” said Egan.
Co-Diagnostics Has a Limited Upside
A memorable quote from former U.S. Secretary of Defense Donald Rumsfeld goes like this:
“There are known knowns…there are known unknowns…But there are also unknown unknowns — the ones we don’t know we don’t know.”
Right now, the Covid-19 virus has too many unknowns. And an uncomfortable feeling that there may be questions about the virus we aren’t thinking to ask.
In the short term, that means there will be a need for testing. And more testing means more revenue that will support a higher share price for CODX stock. Said Egan, “The additional revenues we are experiencing along with our solid balance sheet and debt-free status have all facilitated our efforts to support the global response to coronavirus.”
But testing will ultimately be a good thing. Because once we understand the extent, we can begin to rationalize the actual severity. And that’s why, for companies like CODX, its moment on the stage won’t last.
Co-Diagnostics is here to play a key role, but one that ultimately will become less essential. If the experts are to be believed, the Covid-19 virus will behave similar to influenza and cases will wane as warmer weather arrives.
Maxim Group analyst Jason McCarthy recently downgraded CODX stock saying it was overvalued. I suppose McCarthy is being responsible. But right now, the stock will be worth whatever investors are willing to pay. And in the short term, investors who are looking for any sort of positive return may bid the stock up to stupid levels.
With that said, it may not be too late to buy CODX stock. But if you do, understand that your window for profiting is small. Set your stop losses and take your profits. Oh, and wash your hands.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.