Zomedica (NYSEAMERICAN:ZOM) has been one of the hottest penny stocks of 2021. ZOM stock is up 778% since the beginning of the year. Simply put, a well-placed $1,000 investment on Jan. 4 has increased to over $7,780 as of this writing.
Some of this enthusiasm maybe a bit of meme stock mania. But just being a cheap stock at the right time isn’t the reason for all the hype. Zomedica is launching a point-of-care diagnostic tool, Truforma, in late March. The launch will only hit certain key markets at first. However, it does mean that the company can start bringing revenue in the door.
The bullish case for ZOM stock centers on the growing demand for pet care. In fact, while our nation’s birth rate is declining; the market for pets is at historic highs. And the trend is showing little sign of slowing. There are breeders who say they have waiting lists that extend late into 2021.
The expectation that new pets have to get their checkups would seem like an ideal catalyst for Zomedica. And it will likely have some effect. However, one of the things that makes me less enthusiastic about ZOM stock is that Truforma may have a very narrow addressable audience.
Pet Care Is Big Business With a Growing Market
If you’re invested in the pet sector, you may be familiar with some of the statistics I’m about to share. More American homes (84.6 million) have pets than children (35 million). That factors out to 68% of U.S. homes having at least one pet. And pet care has grown at twice the rate of our nation’s GDP since 2007.
If you need more convincing that this is a growing market, consider that pet care is projected to be a $205 billion industry by 2025.
And that optimistic forecast has ZOM stock close to its all-time high. But the adage to be fearful when others are greedy may be very apt in this case.
Truforma Captures a Small Slice
Truforma is a point-of-care test for thyroid or adrenal issues in dogs and cats. Currently, to run such a test, a veterinarian has to ship a blood sample to a third party lab. True, this is the same procedure that most of us go through when we have blood work done, but it’s different when it comes to our furry family members. So if vets were able to run these tests in their office, it can save time and anxiety.
But therein lies the problem. This is only a small fraction of the total universe of pet care. In fact, Zomedica concedes that the global diagnostic market will be around $2.8 billion by 2024. Truforma only tests for specific conditions. It’s not insignificant by any stretch. It just limits the upside quite a bit.
And as Matt McCall wrote, Truforma will have to pay licensing fees on the owners of the intellectual property behind Truforma. That will further limit profit in the short term.
The Bottom Line on ZOM Stock
If people loving their pets were enough, I’d be mashing the buy button on ZOM stock. And in fact, I did suggest that it was worth a speculative bet for risk tolerant investors.
But loving pets isn’t enough, and you should be careful of entering a position. I understand that waiting for proof of sales will mean the easy gains are gone, but penny stocks are usually penny stocks for a reason.
If you’re interested in ways to play the burgeoning pet market, let me suggest a couple of things. First, you could look at a stock like Idexx Laboratories (NASDAQ:IDXX). This company is an industry leader in pet health care. The company also has a proven business model and relationships with practicing veterinarians across the globe. The stock is up over 136% in the last 12 months.
Another way to play the growing demand for veterinary care is the ProShares Pet Care ETF (NYSEARCA:PAWZ). This is the first ETF that has the pet care industry as its sole focus. The ETF is up 113% in the last 12 months.
If you absolutely must invest in ZOM stock, I recommend a small position now and only with money that you can afford to put at risk.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.