Zomedica (NYSEAMERICAN:ZOM) is one of the best-performing healthcare penny stocks in the past year. ZOM stock is up a massive 503% in the past year, primarily due to the hype surrounding its pet diagnostic product, Truforma. It has released Truforma ahead of schedule, but the market doesn’t seem all that excited about the development, as ZOM stock is down more than 50% in the past month.
The market’s response is puzzling, considering the stock’s stellar performance in the months prior to Truforma’s release. Perhaps the euphoria around the stock is now wearing off or maybe the company’s failure to provide forward guidance upset investors.
I think that the lack of a high number of pre-orders and sales agreements has many investors concerned. Zomedica recently signed a deal with Miller Vet Supply, one of the oldest veterinary distributors in the U.S. However, a handful of customers will not support the lofty market capitalization of ZOM stock.
Zomedica’s First Truforma Deal
For months, veterinary experts have been talking about the potential of Zomedica’s innovative solution. Truforma is essentially a point-of-care diagnostics tool for dogs and cats, intended for veterinarians’ offices. Instead of taking a sample from your pet and sending it off to a lab for analysis, vets can load the sample in Truforma and get test results. Vets can then pick the right treatments for pets based on the results.
When it was launched, Truforma was able to handle five diagnostic assays for cats and dogs. It plans to add a couple more assays by the end of this year. Moreover, three new gastrointestinal health assays are in development, and more will be launched in the future. The animal diagnostics market is set to grow at a compound annual growth rate of 9.8% from 2020 to 2025, presenting an incredible source of recurring revenues for Zomedica.
The good news for the owners of ZOM stock is that Truforma has officially been commercialized and that Zomedica has found its first customer for the product. The first purchaser of the system was Dr. Jason Berg, the founder and president of Guardian Veterinary Specialists. Dr. Berg is one of the biggest and most respected names in veterinary medicine.
The news of this first sale is encouraging, and the fact that Truforma is being marketed ahead of schedule is also encouraging. However, Zomedica still has a lot to prove before Truforma can replace the industry’s existing practices on a wide scale.
Risks
Though Zomedica has made great strides recently, it poses certain risks that investors cannot ignore. The launch of the Truforma platform is likely to be expensivet, and the total cost of commercializing the system is unknown, since the company didn’t provide any forward guidance in conjunction with its most recent report.
Furthermore, there are questions surrounding the data on Truforma. Last November, after reporting successful trial results, the company began validating its assays. However, those validation efforts are still underway, so veterinarians should be concerned about the product’s accuracy.
Additionally, the expectations surrounding the company have driven its market capitalization to nearly $948 million. That is a massive valuation for a company that is yet to generate significant revenue from a new product. Point-of-care diagnostic products are popular with doctors, but no company has marketed them to veterinarians before.
A Final Word on ZOM Stock
ZOM stock has been on a bearish run recently, despite the company’s earlier-than-expected release of Truforma. Regardless of investors’ lack of enthusiasm for Truforma, the product is a step in the right direction for Zomedica. However, it has a lot of ground to cover before long-term investors can think of adding it to their portfolios.
Before taking a bullish position in the name, it would be prudent to let the next few quarters play out and see how things progress for the company in terms of revenue and margins.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
