Browsing through social-media postings is a quick and dirty method of finding out what’s hot and what’s not in the world of equities. And suffice it to say that Co-Diagnostics (NASDAQ:CODX) stock is red-hot, at least in terms of mentions and heated discussions.
In and of itself, there’s nothing wrong with a stock being a hot topic or even a contentious one. As an informed investor, however, it’s important to avoid the hype and think sensibly. Unless you’re just buying a very small number of shares as a “lotto play,” it’s hard to justify taking a position in CODX stock.
And by that, I mean it’s best to avoid both the long and the short sides of the trade. Or, to satirize an old public-service announcement, friends don’t let friends trade CODX stock.
Not a Firm Foundation
The main issue here is that the spread of the novel coronavirus has placed certain diagnostics companies in the spotlight. Co-Diagnostics is among that group of companies, and the hype surrounding CODX stock has gotten out of control.
May 14’s price action is a case in point. That morning, CODX stock leaped 26.9%, only to soon retrace back to a 16.4% gain. Was this swift price movement based on a positive development for Co-Diagnostics?
Not really. Mostly it had to do with bad news for the company’s chief competitor in producing Covid-19 testing kits, Abbott Laboratories (NYSE:ABT). The White House is using Covid-19 testing kits from Abbott, which is a huge advantage for that company.
Therefore, any bad news for Abbott may be perceived as good news for Co-Diagnostics. Specifically, the bad news was that a New York University study potentially cast doubt upon the accuracy and/or consistency of Abbott’s Covid-19 testing kits.
There’s a concept known as schadenfreude, which can loosely be defined as taking pleasure in someone else’s misfortune. It might feel good in the moment, but it’s not a firm basis for investing in a company. May 14’s quick gains in CODX stock, based on Abbott’s likely temporary problems, just didn’t seem sustainable.
The End of the Bull Run?
And so, as often happens after a hype-fueled stock-price pop, the inevitable drop came soon and relentlessly. By the end of May 14’s trading session, the CODX stock price had quickly turned around, delivering shareholders a loss instead of a gain.
And then there was the next day, which was just awful for long-side CODX stock traders. On May 15 the stock price declined by $5.06, representing a 22.8% single-session share-price loss.
That same day, InvestorPlace contributor Ian Bezek solemnly declared that “the bull run in CODX stock ended. Bezek also urged readers to unload their CODX stock shares before it’s too late.
His argument is compelling, and Bezek’s article is a must-read for anyone holding or even just considering buying the stock. Among other contributing factors, Bezek cited “reports that the company’s test kits might not be working as well as hoped in various states.”
Elaborating on this, Bezek observed, “There are reports from Iowa, Nebraska, and Utah all questioning local Covid-19 testing practices that use Co-Diagnostics’ method.” Thus, while Abbott’s got issues in New York, Co-Diagnostics’ got problems in multiple states.
On the positive side (maybe), the company is apparently profiting from its Covid-19 testing kits. Co-Diagnostics CEO Dwight Egan reportedly claimed that strong demand for these kits is contributing to a profitable second quarter for the company.
The Takeaway on CODX Stock
So, what can we make of all this? Is the bull run in CODX stock truly over? You’re certainly invited to read Bezek’s take on the issue and decide for yourself. Perhaps the best approach is to just avoid the stock entirely as hype and schadenfreude have replaced clarity and sanity.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.