Easily one of the most remarkable companies so far this year, Co-Diagnostics (NASDAQ:CODX) has truly redefined crisis investing. At the start of 2020, CODX stock was trading hands below a buck. To end the first week of June, shares closed just two pennies below $16. Truly, the returns that early bird investors enjoyed are reminiscent of the cryptocurrency space.
At the onset of the novel coronavirus pandemic, countries around the world emphasized testing. For instance, one of the reasons attributed to South Korea’s early mitigation efforts was that its government aggressively ramped up testing. Before you fight a battle, you must know your enemy. Suddenly, the diagnostics space became a veritable gold mine, explaining the dramatic rise in CODX stock.
Still, many investors were skeptical about Co-Diagnostics, even as its equity value launched into low-earth orbit. Primarily, the company didn’t have a great track record leading up to the pandemic in terms of technical confidence. Typically, people don’t want to gamble too much on penny stocks. Certainly, they don’t want to gamble on them when they’ve reached ridiculous valuations.
In addition, the economic narrative seemingly doesn’t support the case for CODX stock. A few months ago, diagnostics represented a pivotal component in a bid to stem the pandemic’s tide. Clearly, aside from broader health concerns, government officials were worried about Covid-19’s economic devastation.
However, a stunning May jobs report in which the U.S. economy added 2.5 million jobs suggested that the worst is behind us. Further, big Memorial Day crowds, along with packed casinos in Las Vegas, suggests that the consumer is no longer worried about the virus.
Suddenly, Co-Diagnostics doesn’t seem so relevant anymore.
CODX Stock Is Risky, But Upside Is Still Possible
To add fuel to the bearish sentiment, Co-Diagnostics stock slipped on Friday when the government released the May jobs report. Unfortunately, this contrasts starkly to the major indices, which lit up in green ink. Therefore, if investors weren’t already skeptical, they surely are now.
However, I believe the economic optimism is very misguided. Don’t get me wrong — that’s not to suggest that CODX stock is a clear buy. Undoubtedly, this is a risky name and this reputation may not change for some time.
Still, let’s be reasonable. If the economy was truly so great as several conservative talking heads are gloating about, then why the food banks?
I’ll answer my own question. If you drill into the details of the May jobs report, you’ll notice that it’s not a comprehensive rebound. For instance, white Americans enjoyed a significant drop in unemployment, from 14.2% in April to 12.4% in May.
On the other hand, black unemployment increased slightly from 16.7% to 16.8%. Asians suffered as well, with their unemployment rate rising conspicuously from 14.5% to 15%.
I don’t think it’s a stretch to assume that these glaring statistics will fuel calls for social equity and justice. And that’s one of the potential catalysts for CODX stock.
As you can tell from coverage of the protests, social distancing isn’t exactly a top priority. Even though many protesters are wearing masks, you’ve got to figure that during the heat of the moment, proper use of those masks may become compromised.
Additionally, the constant physical contact with others may promote opportunities for infection. Thus, a second wave may come sooner than expected, making diagnostics still important.
An Unfinished Battle
Despite most states now at least partially reopening their economies, I can’t help but notice that coronavirus cases in the U.S. remain uncomfortably elevated. And I’m not getting this assessment from some random, unverified source. Rather, I invite readers to consider the data of new daily cases from the Centers for Disease Control and Prevention.
Essentially, we’ve leveled off at approximately the 20,000-case mark, which probably isn’t ideal. Furthermore — and this is a stat that caught me off guard — most cases in the U.S. are in the 18 to 44 years demographic. Roughly, this corresponds with the millennial generation, which represents the largest demographic in the U.S. workforce.
Apparently, this demo is the one representing large swathes of the aforementioned Memorial Day and Las Vegas crowds. With such close contact and variable individual mitigation efforts, the specter of a second wave looms large.
Therefore, the smart approach is for health officials to continue stepping on the gas for increased testing. And that, despite many risks, bodes well for CODX stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.