There are a number of ways to invest during the crisis brought on by the novel coronavirus. Most traders focus on the typical coronavirus stocks, which tend to represent companies working on vaccines and treatments. Co-Diagnostics (NASDAQ:CODX) stock, on the other hand, is a different type of coronavirus stock.
As the company’s name implies, this is a diagnostics-solutions company. It is not trying to develop or market a vaccine or a treatment. Therefore, you might consider it a hidden gem in the markets. But once you’ve weighed the price versus the company’s earnings, you might have difficulty justifying a long position in CODX stock.
Regulatory Clearances
Getting approval from regulators is crucial for a company like Co-Diagnostics. Without governmental clearance, even the best COVID-19 testing kits won’t turn a profit. And for Co-Diagnostics, getting the company’s testing kits to market is critical.
Fortunately, the company has managed to clear some regulatory hurdles. As Co-Diagnostics reports, the company earned a key European approval earlier this year:
“In February 2020, the Logix Smart COVID-19 Test kit received CE marking approval, the principle [sic] regulatory clearance allowing the test to be sold as an in vitro diagnostic (“IVD”) for the diagnosis of COVID-19 in European Union states and other markets that accept a CE-IVD mark as valid regulatory approval.”
It’s probably no coincidence, then, that the CODX stock price skyrocketed in February. Businesses and individuals sought not only a vaccine, but also a way to test for the coronavirus. Co-Diagnostics’ Logix Smart COVID-19 Test kit is a single-step, real-time coronavirus test kit. Because of its speed and efficiency, this test kit is exactly what the market was looking for.
Then in March, the U.S. Food and Drug Administration greatly expanded its policies supporting COVID-19-diagnostics companies. This policy expansion wasn’t specific to Co-Diagnostics. However, the more supportive policies could enable the company to more aggressively market its products and thereby augment its market share.
The Price Is the Problem
As you might expect, Co-Diagnostics CEO Dwight Egan praised the FDA’s supportive stance. Moreover, he touted the policy expansion as an opportunity for his company to increase its footprint in the coronavirus-testing market:
“This change will quickly afford Co-Diagnostics even more opportunities to serve the needs of laboratories nationwide, as we play an even larger role in responding to this pandemic … Our cost-effective Logix Smart CODIV-19 test has been designed to run on a variety of commercially available platforms, with easy-to-interpret results in under two hours. We are confident in our ability to meet the growing demand for this diagnostic.”
On top of that, on March 20, Co-Diagnostics announced that the company’s Logix Smart COVID-19 Test kit successfully completed its clinical evaluation. That’s exciting news for the company, no doubt. And it might be tempting for traders to jump on this opportunity through a position in CODX stock.
Yet, it’s important to take a step back and consider whether these potentially favorable developments have already been priced into the shares. The price of CODX shares has increased by more than 800% since the beginning of the year.
In early March, the stock was up more than 1,600% since Jan. 1. Since then, it has exhibited the typical pop-and-drop behavior of an over-hyped stock. Buying CODX stock at the current price point isn’t necessarily the right thing to do for a value-minded, contrarian investor.
The Takeaway on CODX Stock
Recent regulatory approvals could prove to be a major catalyst for CODX stock. Still, investors have to understand that price does matter. Unfortunately, the exciting recent developments for Co-Diagnostics might have already been priced into the shares in February and March. So, it may be better just to avoid this stock for the time being.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
