Zomedica (NYSE:ZOM) is a veterinary health company that has had many investors talking. In fact, ZOM stock has become one of the top penny stocks of the year.
The company — which makes point-of-care diagnostic products for cats and dogs — just watched its stock rally from a November low of about seven cents to over $2 today. That’s a return of about 2900% in just over three months, all as pet products become a multi-billion-dollar market.
According to Statista, pet industry sales were up to $99 billion last year in the U.S. alone. That’s $9 billion more than 2018. In addition, according to the American Pet Products Association (APPA), pet food and treats made up the biggest portion of the market with $38.4 billion. That was followed by vet care sales, which came in at $30.2 billion.
But this is just one of the key catalysts for ZOM stock. Others could help double — if not triple — this pick. However, while there are plenty of reasons to be bullish on this name for the long run, there is also reason for near-term caution.
ZOM Stock and the Truforma Launch
The first positive for ZOM stock — aside from overall pet industry growth — is that the company is expected to release its Truforma diagnostic tool in March.
Trufroma is expected to provide quick and effective in-office diagnostics for disorders in cats and dogs. The product was designed in tandem with a Qorvo (NASDAQ:QRVO) subsidiary, Qorvo Biotechnologies,. According to the two companies, it “could be a first-of-its-kind, complete thyroid and adrenal detection platform.” Zomedica’s President, Stephanie Morley, notes:
“We believe TRUFORMA™’s innovative capabilities will be a major step forward in our efforts to bring reference lab testing capabilities to clinical veterinarians at the point-of-care,” said Stephanie Morley, DVM, and president at Zomedica. “We believe that the TRUFORMA™ platform has the potential to establish the Company as a leader in point-of-care diagnostic testing of companion animals in veterinary medicine.”
Positioned to Capture Part of the Diagnostics Market
On top of its Truforma release, ZOM stock also looks good because it could capture a significant share of the global companion animal market, specifically its diagnostics segment. Last year, that portion of the market was worth $1.8 billion. According to Markets and Markets, it could be worth $3 billion by 2025.
Recently, Zomedica also struck a Truforma distribution deal with Miller Veterinary Supply. According to Seeking Alpha, “Miller will be representing Zomedica in states ranging from Texas to Maine, concentrated in the eastern and mid-eastern portion” of the country. Because of that — should vets buy Truforma for their practices — ZOM stock could race to much higher highs. After all, as reported by the American Veterinary Medical Association (AVMA), there are over 113,ooo vets in the States.
Finally, though, Zomedica is currently in a relatively good financial position. After exercising outstanding warrants in mid-January, it received more than $40 million in additional cash. Now, ZOM has cash and cash equivalents of $90 million. The company expects for that to fund operations through 2023 — and expects to be cash flow positive by then.
So, given all of these positive catalysts, I wouldn’t be shocked to see shares of Zomedica gain more momentum, especially if sales pick up steam.
The Negative: Zomedica Is Technically Stretched
All that said, though, you should be cautious about ZOM stock in the near term. Once Truforma is released, it could see a quick sell on the news reaction from overbought conditions.
At the moment, the stock is exceptionally overbought on relative strength, using indicators like RSI, MACD and Williams %R. On top of that, fellow InvestorPlace contributor Mark Putrino has noted its substantial losses:
“Investors should be careful with this stock. Zomedica loses a lot of money. And it has gotten progressively worse over the past four years […] In 2019, the loss was $19.8 million. This was a significant increase over the $16.6 million loss in 2018. In 2017, the reported loss was about $8 million, while in 2016 it was $5.7 million.”
The bottom line? Zomedica has a lot going for it, but that doesn’t mean you should throw caution to the wind.
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On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.