Zomedica (NYSEAMERICAN:ZOM) made a decision last week to launch Truforma, its pet lab diagnostic system, early. That launch brings in its first revenue and will help propel its commercialization efforts. As such, I believe that ZOM stock is worth at least $2.50 to $3.00 per share long-term, once its sales start to take off.
ZOM stock has been on a tear since the beginning of the year, up over 670% as of Mar. 23, with it trading at around $1.80 per share. But if my analysis is correct, the stock is worth at least another 36% to 76% — if not more.
So, here’s why you should pay close attention to Zomedica stock.
What ZOM Stock Is Worth
In my last article on Zomedica, I argued that the company could achieve 10% of the pet diagnostic market long-term. Its 10-K states that the animal diagnostics market is projected to reach $2.8 billion by 2024, up from $1.7 billion in 2019. Moreover, they refer to an IHS Markit study that says the “global veterinary immunodiagnostic market” will be worth $2.1 billion by 2022.
The U.S. is probably at least one-half or more of that amount. That means that the domestic market could be worth $1.05 billion by 2022 (using the IHS study) or $1.4 billion by 2024 (using the 10-K reference).
Therefore, assuming 10%, I estimate Zomedica could reach at least $105 million and up to $140 million in sales down the line. Of course, ZOM has not given its own forecast of sales yet, so I’m not sure if this is even in the ballpark by 2022 to 2023. But that is my best guess at this point.
So, at 10 times sales, Zomedica is worth between $1.05 billion and $1.4 billion. In addition, the company has about $278 million from recently raised capital. That puts its value as high as $1.678 billion, or at an average of $1.5 billion.
Moreover, on Feb. 26, the company announced its earnings and indicated it had 947.3 million shares outstanding. On Mar. 8, the company exchanged its Series 1 Preferred shares for 24.7 million shares. The total is a little over 972 million shares. Therefore, at 10 times sales, its value ranges from $1.54 to $1.73 per share.
But at 20 times sales, the value could be as high as $3.078 billion. That works out to $3.17 per share. Therefore, averaging these two multiples, ZOM stock is worth somewhere around $2.45 per share, although it could be as high as $3.17. That implies a potential gain of 36% to 76% above today’s price.
What to Do with Zomedica
As the stock rises, the ZOM share count will likely rise as well, since more insiders will exercise their warrants. This results in more cash in the company’s bank account. But it will also marginally dilute existing shareholders. In a sense, this is a wash, since (if the company makes money) the cash balance will grow. In addition, as you saw above, I add the net cash balance to the company’s target value.
But there are a number of downsides with ZOM stock. The biggest, of course, is what one Seeking Alpha author pointed out: there is simply no data on how well Truforma will perform on-site with veterinarians.
Of course, Truforma is a lab-testing product that veterinarians use for immediate test results on dogs and cats. This allows them to not have to send the tests out to a lab for analysis. It also means that they can charge more. So, it is bound to be very useful and popular with veterinarians. But there’s no guarantee that vets will think it’s worth the initial expense.
Finally, though, it’s true that a good portion of the upside is already in ZOM stock. Nevertheless, if my projections come true, there could still be more upside. That depends on a value range between $2.45 to $3.17 per share, based on its cash balance plus multiples of 15 to 20 times sales by 2022.
All told, this is still a risky penny stock. But there does appear to be some value left here.
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On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.