Zomedica (NYSEAMERICAN:ZOM), and its stock look quite intriguing. Veterinary diagnostics certainly should have a lot of potential as a growth area. After all, it’s no secret that people love their pets. Some of the statistics around our love for our furry friends are truly surprising.For example, 45% of American pet owners spend as much or more on pet healthcare as they do on their own.
Catalysts like that provide a strong backdrop for potential investments in veterinary diagnostics stocks like Zomedica.
The narrative behind Zomedica is interesting, and after lots of recent volatility ZOM stock is approaching former highs. Yet it still makes plenty of sense to get in now.
Capitalizing on a Share Price Run-up
Zomedica is a young company soon launching its first product. Thus, the promise of its growth potential is underpinned by the reality that it recorded no revenues in 2020.
That’s why I’d view the company’s decision to issue 91.315 million shares of stock as a smart one. The company was able to raise $173.5 million in capital proceeds on the heels of a run-up in prices. Sure, prices slumped to slightly below the offer price of $1.90 per share following the news, but they’ve risen back above that already.
The important thing is that the young company now has more capital with which it can sell its first product. Investors worried over dilution are missing the point. That’s because Zomedica’s Truforma diagnostic platform has the potential to send ZOM stock skyward.
The Immediate Future for Zomedica
The reason investors should be interested in ZOM stock is because of its veterinary diagnostic platform called Truforma. Truforma is a biosensory platform that aids veterinarians in complex diagnostics. Basically, it’s a 7 pound box that allows vets to run labs in their office for diagnosing specific conditions. This eliminates the need to send specimens to offsite laboratories resulting in quicker treatments for pets.
The platform includes feline and canine thyroid and adrenal assays currently. But more assays are in development which clearly expands Zomedica’s addressable market opportunity.
Truform’s product offer then is complete control over the testing process and the reduction of sample transportation error.
Finances
As mentioned above, Zomedica doesn’t yet have any revenue. The company recorded a comprehensive loss of $16.9 million in 2020 which is an improvement upon the $19.8 million loss it posted a year prior.
A positive here is that $8 million of that was attributable to R&D. Ostensibly a good portion of that came from the platform. R&D expenses for 2019 were $10.3 million. The company does state that it “will continue to incur significant research and development expenses.” The cost to develop a single assay is roughly $0.5 million as one such example.
Investors can crunch the numbers ad infinitum, but Zomedica remains a bet. Investors won’t be able to ascertain much based on what has happened in the past. We simply know that the company lost money developing the Truforma platform, and has a big opportunity in front of it.
Zomedica is looking to carve out its place within the veterinary diagnostics industry which is growing healthily. The company anticipates a CAGR of 9.8% which is bringing the addressable market from $1.7 billion in 2019, to $2.8 billion in 2024. And with dogs now living to an average age of 15.4, healthcare expenditures will rise.
Marketing Truforma
Zomedica recently enlisted the help of the oldest U.S. wholesale veterinary distributor to sell its first product. Miller Veterinary Supply will represent Zomedica in states in states from Texas to Maine.
Zomedica does not have its own sales team, and there is inherent risk in relying on Miller to develop Truforma’s market. But risk is inherent in any young company.
Takeaway
I think it makes sense to take a chance on ZOM stock. The company is small, the market is right, and the company anticipates its working capital needs to be covered through 2023. The Truforma platform could prove too valuable to worry about the risks facing the company.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
