Despite Market Over-Enthusiasm, Zomedica Is Worth Real Consideration

“Oh, no,” I thought as I pondered the companies I was scheduled to write about today. “Not another penny stock!” But it turns out that Zomedica (NYSEAMERICAN:ZOM) and ZOM stock could be right up my alley. 

Persian cat with veterinarian doctor at vet clinic

Source: didesign021 /

Zomedica makes point-of-care diagnostic products for cats and dogs. As an animal lover, I’m always excited to learn about a company doing excellent things in the animal health space. 

I’ve written about pet stocks to own on several occasions. I’m hoping Zomedica will meet my standards for admission. 

Having never written about ZOM stock before — or even heard about it for that matter — my examination might be quite rudimentary for some of its ardent followers. I apologize in advance. 

For the rest of you, here’s my two cents worth.

ZOM Stock Hits $2

Zomedica’s share price closed out trading for the week of February 1-5 at $1.91. The following Monday, it opened at $2.27, up 18.8%. It finished Feb. 8 trading at $2.70, 41% higher than its previous day’s close. 

It’s since closed above $2 for six consecutive days. ZOM stock hasn’t traded above $2 for any length of time since June 2018. Even then, it only traded above $2 for less than a year. 

So, what’s so great about Zomedica that this time it’s different?

Well, for starters, it appears that the appetite for its stock is much greater than it was back then. 

InvestorPlace’s Louis Navellier recently discussed how Zomedica increased the size of its bought deal from 13.2 million shares to 91.3 million. As I write this, it’s trading around $2.20 a share. That’s a difference of $172 million in funds raised by its common stock offering.

In actuality, Zomedica closed its bought deal on Feb. 11, selling 91.3 million shares at $1.90 with a 30-day option for underwriters to buy an additional 13.7 million shares. Assuming they do, that’s gross proceeds of $199.5 million.

Navellier stated on Feb. 16:

“Usually it’s the institutional investors that are getting involved, or what some folks might call the ‘smart money.’ These institutions generally will conduct deep research into a company before purchasing large quantities of the company’s stock shares.”

He’s absolutely right. Robinhood investors aren’t the ones buying these shares. That’s a big positive. And so too is the nearly $200 million in funds it now has to grow its business. 

Sure, the existing shareholders have seen their holdings diluted by almost 13% (105 million shares on top of 841.9 million outstanding before the bought deal), but you have to spend money to make money in life. 

What’s Zomedica Developing?

The company will use the proceeds from the bought deal to launch its Truforma diagnostic platform for dogs and cats. The launch is set for the end of March. 

In its Jan. 18 shareholder letter, Chief Executive Officer Robert Cohen discussed the year ahead for Zomedica. The CEO reminded investors that its cash position was strong, with more than $90 million on its balance sheet after accounting for capital expenditures in the fourth quarter.

More importantly, Cohen said that Zomedica had enough cash to fund its operations through the calendar year 2023. That’s almost three years away. That doesn’t include the $200 million from the bought deal mentioned earlier. 

As it pertains to Truforma, Cohen says the company is on track to meet its March 30 launch date. 

“As our sales effort begins, we intend to implement a controlled release phase wherein we slowly begin the sale of the TRUFORMA instrument and at least three assays in a limited geographic area in order to test our distribution system to be sure that it performs as we anticipate in these COVID-challenged times,” Cohen stated in its shareholder letter.

“We then expect to add two more assays later in 2021 as we continue to pursue a limited target market.”

These five assays will be used in conjunction with Truforma to rapidly detect thyroid disease in dogs and cats and adrenal disease in dogs in as little as 18 minutes.

That gives veterinarians a big headstart in coming up with a treatment plan for your companion animal. Having owned several cats that suffered from thyroid-related issues, any time savings made in the detection process is beneficial. 

I recommend you read the last few paragraphs of Zomedica’s shareholder letter. It provides excellent insight into Truforma and what the company is trying to accomplish.

The Bottom Line on ZOM Stock

Through the first nine months of fiscal 2020, Zomedica had no revenue and an operating loss of $16.9 million, 25% higher than a year earlier. In the third quarter, its operating loss was 76% higher. 

March 30 can’t come soon enough. 

That said, with the global pet diagnostics market set to grow to $2.8 billion by 2024, this penny stock looks like it’s got a shot at double digits over the next 18-24 months. 

It’s speculative, to be sure, but no more speculative than a lot of the crap investors have been betting on in recent weeks. 

If you’ve got fun money, ZOM stock is an interesting buy.   

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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