Since February, investors have been flocking to several biotechnology and medical companies, such as Co-Diagnostics (NASDAQ:CODX), that have been working on coronavirus-related cures or diagnostic tests. Year-to-date (YTD) CODX stock is up an eye-popping 1,722%. In January it was a penny stock, now it’s hovering at almost $17.
In late January, Co-Diagnostics announced that it was working on the development of a diagnostic test for testing COVID-19. The in vitro test is called Logix Smart. Since then, there have been several news announcements from management. As a result, CODX stock has defied gravity.
Now investors are wondering if CODX stock can make new highs in the rest of the year. Therefore today, I’ll take a closer look at what investors may expect from the shares. If you are currently an investor with paper profits, you may want to realize at least some of the gains. Here’s why.
CODX Stock and the Diagnostics Test
As the pandemic started affecting millions of people worldwide, investors realized that the global demand for coronavirus diagnostic kits could spike in 2020 and beyond.
According to the U.S. Department of Health and Human Services, “Diagnostic Testing is used to confirm or support a clinical diagnosis of viral infection in symptomatic individuals and inform treatment and implement preventive measures to contain further spread.”
On March 17, Co-Diagnostics said that it would be benefitting from the recent FDA policy change to allow rapid domestic expansion of its COVID-19 test. It further confirmed that it was shipping the test kits to countries all over the world. Following the press release, it went from around $9 to $13 in a matter of hours.
When it released 2019 year-end financial results in late March, investors noticed upbeat comments and the announcement of various strategic partnerships. April and May also saw more updates which contributed to the ebb and flow in the price of CODX stock. On May 14, it released Q1 results and reported a quarterly revenue of $1.5 million. It also recorded COVID-19 test and equipment sales of over $18 million YTD through mid-second quarter.
Prior to the release of the quarterly statement, CODX stock hit an all-time high of $29.72. Since then, profit-taking has kicked in and it is now about $17.
What to Expect Now
Effective testing for a disease like the coronavirus is a crucial part of winning the battle against the disease. According to recent research, “the epidemic curve presented was likely affected by limited testing, particularly in the early phases of the outbreak.” In other words, diagnostic testing is a crucial step in winning the battle against the coronavirus.
Therefore, Co-Diagnostics as well as its peers have to ensure that their tests are scientifically as valid as possible. Validity “is the extent to which a test measures what it is supposed to measure; in other words, it is the accuracy of the test. Validity is measured by sensitivity and specificity.”
InvestorPlace‘s Larry Ramer has recently written in detail about the accuracy of Co-Diagnostics’ in-vitro test. He concluded that the Logic Smart test may not be as accurate as others manufactured by competitors.
Sensitivity is the ability of a test to correctly classify a person as ′diseased.′ On the other hand, a test′s specificity is its ability to correctly classify an individual as “disease-free.” According to recent research, the Logix Smart test does not score very high on accuracy.
By comparison, the test developed by Roche (OTCMKTS:RHHBY), for example, scores rather high. Needless to say, a pharma major such as Roche will likely be in a stronger position to develop such an important test in a short period of time than other firms like Co-Diagnostics.
Finally, in the recent “Report to Congress: COVID-19 Strategic Testing Plan” presented by the Department of Health and Human Services, the name of Co-Diagnostics does not appear. Could this an important sign that the government may be bypassing the Logix Smart test? If yes, could it because the U.S. government is not convinced about the validity of the test?
Investor Takeaway on CODX Stock
Countries around the world need access to rapid diagnostic testing. However, in the end only the best tests will likely survive this race to develop such an important test.
Between February and mid-May, the optimism around the test developed by Co-Diagnostocs pushed CODX stock to new highs almost every week. Seasoned investors may even call this exuberance a potential bubble.
Yet as I write this, the jury may be out as to whether the Co-Diagnostocs’ test may be one of the best. If there are any further news headlines that cast doubt on the validity of the test offered by Co-Diagnostics, then CODX stock will likely come under further pressure.
Until there is further scientific evidence, I would not commit any new capital to CODX stock. I’d at least wait to see full metrics and scientific evidence that may be announced in the upcoming Q2 earnings result expected in August.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
