When I see a penny stock like Zomedica (NYSEAMERICA:ZOM) move 200% in one month, my first reaction is to be skeptical. However as I’ve looked at ZOM stock, I can see what has investors excited. Zomedica is an animal health company that is in the process of developing pet diagnostics for point-of-care applications in dogs and cats.
As anyone who has taken a pet to the veterinarian for tests, labs have to be sent to an outside lab. This creates a delay in diagnosing and beginning treatment for conditions. It’s a source of inefficiency and stress for the pet, its owner and the veterinarian.
The market for these services is large, and expected to grow. In a press release, Zomedica cites “the diagnostics segment of the global companion animal market is expected to reach $2.8 billion by 2024.” To put that in context, that’s a nearly 10% compound annual growth rate.
And as Todd Shriber reminds us, the Covid-19 pandemic has increased the rate of pet adoption to such an extent that some shelters don’t have enough dogs to meet up with demand.
The Speculation Is Warranted
The one thing missing from Zomedica’s resume is a product that’s on the market. But it’s coming. In Nov. 2020, Zomedica announced it expects to begin commercialization of its pet diagnostics platform TruForma with a release in late March. Predictably the stock jumped nearly 150% by year’s end.
But the real spectacular gains occurred in January. I can understand if that gets your skepticism meter up. And I can’t guarantee that there aren’t traders who are taking a position and looking to make a quick profit.
However in this case, I think the speculation is warranted. The company has many of the bases covered.
First, Zomedica has a compelling and emerging business case that will start to deliver revenue to the company in the second quarter of this year.
Second, once TruForma is ready, Zomedica is taking steps to make sure it can get the product in the hands of veterinarians as soon as possible. The company has signed a distribution agreement with Miller Veterinary Supply. Miller, supported by the company’s sales reps will cover the U.S. from Maine to Texas.
Plus, the company announced it has raised $40 million as investors have exercised their warrants to buy ZOM stock. As Mark Hake writes, this is giving the company “over $90 million, net of all capital and operating expenditures from the fourth quarter.”
The news gets better. The company anticipates having enough cash to fund operations through at least 2023. And at that time, the company expects to be free cash flow positive.
Bet on the Best Case for ZOM Stock
Good advice in investing, as well as life, is to ask what’s the worst thing that can happen here? In the case of Zomedica, the worst-case scenario may be a delay in bringing TruForma to market.
Notice I said delay because it seems a near certainty that TruForma will get launched. Once you take into account that the worst-case scenario isn’t really that bad at all, the only question becomes how high can ZOM stock go?
That’s for you to decide after you do your research. Zomedica is a small-cap company that has yet to deliver revenue, and TruForma does have limited, albeit significant use cases.
However, it’s not like you’re betting your retirement on the stock. As a speculative play, it’s worth making the investment. It’s leaning into a solid, growing market. It will have a first-mover advantage that would appear to have a significant barrier to entry for its competitors.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.