Up until late 2020, virtually no one had heard of Zomedica (NYSEAMERICAN:ZOM). The company was an obscure developer of a novel diagnostics platform for animals. ZOM stock traded for less than 10 cents per share and had virtually no buzz.
Then everything changed. The company scored an unexpected social media promotion, Reddit latched onto it, and shares exploded. Since November, shares are up more than 2,000%.
That’s not a misprint. The former 7 cent stock is now trading for more than $2 per share. And it’s all happened on surprisingly little news. The most tangible events were twofold.
One, social media influencer and Tiger King star Carole Baskin endorsed ZOM stock in a viral video. Second, Reddit and r/WallStreetBets picked up the stock, urging readers to buy it as a potential short squeeze target.
A Fantastic Short Squeeze and ZOM Stock
That’s been a perfect call, at least in the near-term. The stock indeed squeezed far beyond what almost anyone could have imagined a few months ago. Adding to that, impressively, ZOM stock is holding up even now.
That’s in stark contrast to the others like GameStop and AMC that are down 75% or more from their January heights.
Surely, with this sustained stock strength, Zomedica’s actual fundamentals are rapidly picking up steam as well, right? Not so fast. In fact, here’s where things get a little bit murkier. While nothing has gone wrong for Zomedica, there’s not a lot of tangible progress either.
Zomedica Is Largely the Same
Remember that the two big factors in Zomedica’s rise were both external. It got a big public relations boost, and Reddit latched onto the stock. Those are both positives from a trading perspective, but neither matters to the actual underlying value of the company.
For one thing, Zomedica hasn’t even reported earnings since last November. That’s right, the stock is up thousands of percent since the last time it updated its financial numbers. Within the next week, judging from its past filing dates, Zomedica should have its annual report out. However, up until now, investors have bid the stock to the moon on no new financial results.
The company has hired a new CEO in this span. So that’s a plus. And it’s gone from establishing a path to commercialization in November to setting a more concrete launch date.
Things are moving along in the company’s business plan. You could justify the stock moving up moderately on these developments. However, shares are up 2,000% now.
Valuation and Dilution Are Sticking Points
Our Vince Martin had a great analysis of the underlying math to ZOM stock’s valuation. As Martin noted, a year ago February, Zomedica had 129 million shares of stock outstanding plus another 29 million in options in warrants. Fully diluted, there were 158 million shares of Zomedica out there.
Fast forward a year, and Zomedica had sold more than 320 million new shares of ZOM stock to the public. Regrettably, it sold most of these shares for fewer than 20 cents each. In all, it raised only $50 million in cash despite that torrent of dilution. By Zomedica’s own stock sales, it sold off two-thirds of the equity of the company for just $50 million.
Meanwhile, investors had added close to $2 billion to the company’s market capitalization recently. You can argue the company’s valuation has increased with the recent publicity, but this seems excessive.
Subsequently to Martin’s report, Zomedica launched yet another stock offering, diluting the stock even further. Though, to the company’s credit, at least this one went off at a far higher share price.
ZOM Stock Verdict
A few weeks ago, I offered a bullish take on ZOM stock. I looked past the Tiger King hype and detailed that there was a real upside case for the stock.
However, that was back at $1 per share. Now, in the space of just three weeks, ZOM stock has more than doubled. When the facts change, so does my opinion.
At a buck, I get the appeal of ZOM stock. Way up here, however, you’re paying a really steep price for a product that is just now entering its commercialization phase.
Hopefully, everything goes well for the company and it can justify this valuation within a few years. Right now, though, traders have gotten way ahead of themselves. For 2021, there’s a good chance that this animal sciences company goes in like a lion, out like a lamb.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.