Zomedica (NYSEAMERICAN:ZOM), which develops point-of-care diagnostic products for cats and dogs, was an obscure penny stock not long ago. But at the start of the year, the shares would go into overdrive. ZOM stock went from 23 cents to a high $2.90.
It’s true that things have calmed down during the past couple weeks. ZOM stock is now a little more than $2. Yet the valuation is certainly outsized, with the market capitalization at a hefty $2 billion.
During this run-up, there has not been much news. Keep in mind that the company reported its latest earnings late last year.
But instead, a key driver for ZOM stock has been Reddit’s powerful forum, r/WallStreetBets. The general strategy has been to target heavily shorted stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). The result is that they have seen huge gains.
So then what now for ZOM? Is it just about speculation or could there actually be something real here?
Well, let’s take a deeper look.
Background on Zomedica
Zomedica is a relatively new company, having been founded in 2015. The focus was on developing cost-effective diagnostics for companion animals.
The lead candidate is called Truforma. It’s a biosensor system and the first five assays are for detecting thyroid disorders in dogs and cats and adrenal disorders in dogs. Interestingly enough, the core technology is used in smartphones and advanced radar for analyzing acoustic waves.
Zomedica has partnered with Qorvo (NASDAQ:QRVO) on the development of the platform, which is protected by about 70 issued and pending patents.
Some of the other benefits of Truforma include:
- Complete control over the testing process.
- Clinical decisions are made faster, which means treatments can begin sooner.
- Minimal training.
- The device is about the size of a shoebox and weighs only seven pounds.
The Go-To-Market Strategy
The plan for Zomedica is to launch Truforma on March 30. And so far, it looks like things are on track.
The strategy is to have a controlled release phase where there will be the sale of at least three assays in certain geographic areas. The idea is to test the distribution system. Then in later 2012, there will be the addition of two more assays.
This approach makes a lot of sense. But of course, it also means that growth will likely be somewhat slow. But this will not be the only headwind. After all, it is far from clear what the adoption will ultimately be. When it comes to cutting-edge medical systems for animals, there is usually a protracted sales cycle.
Here’s what the company notes in its most recent 10-K filing:
The companion animal diagnostic and medical device markets are less developed than the related human markets and as a result no assurance can be given that our products will be successful. Veterinarians, pet owners or other veterinary health providers in general may not accept or utilize any products that we may develop.
Consider the analysis from H.W. Wainwright’s Swayampakula Ramakanth. He estimates that the company will hit sales of only about $53 million by 2030.
Granted, this could easily prove wrong. But this is an indication that getting distribution probably will not be easy.
Bottom Line On ZOM Stock
Zomedica generates zero revenues. Although, the company should have enough liquidity for the next few years. The reason is that the company has aggressively raised capital as ZOM stock started to rise. There is roughly $185.4 million in the bank.
But this has meant flooding the market with shares. Note that there are over 947 million outstanding! This could make it tougher for the stock to sustain the gains.
However, the real issue with ZOM stock is the growth story – and it is muted.
It really does look like expectations are excessive right now.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.