There’s no doubt that Zomedica (NYSE:ZOM) has been working on an interesting idea, and there are enough people backing ZOM stock to fill its coffers for some time.
It has become a meme stock, so individual investors are buying it with all the other crazy penny stocks out there.
Granted, ZOM stock does represent a company with a great idea. Put a mini-lab in each vet’s office so the vet practice can run its own tests in as few as 20 minutes.
That means the clinics don’t have to send samples to labs or lease extra space to house their own bulky diagnostic equipment. Keeping testing and analysis in-house benefits vets in two ways: it lowers costs and it raises revenue (since they can charge clients for testing their furry friends).
Customers get results quickly, instead of waiting a day or more. Also, if the tests come back while the owner is still in the clinic, they’re more likely to decide on how to move forward with treatment then and there.
ZOM Stock Needs More
Right now, Zomedica runs tests for thyroid issues in cats and dogs. This isn’t exactly a game-changer when it comes to fast diagnostics. It’s helpful in that it establishes proof of concept, but it’s far from industry-disruptive.
Also, it only made its first sale last month, but the company has been around in one form or another for nearly eight years now. Fortunately, that sale was to a wholesaler, so ZOM can now sell to the wholesaler’s distribution network, but it also means the products may just be sitting on shelves in a warehouse.
ZOM stock has all the markings of a pandemic stock. It’s dirt cheap, it’s gotten a lot of play on message boards and the new trading services favored by new investors, and it is next-gen tech.
There was also a boom in dog and cat sales and adoptions during the pandemic, especially with people who were alone and wanted a companion to see out the storm.
Correlation Isn’t Causation
All these trends have led a number of tech-forward pet companies to boom in the past year, as store trips dwindled and there was a big demand for e-commerce pet supplies and medicines.
But this boom doesn’t have much to do with diagnostic testing. It’s still a in-office procedure, so ZOM stock doesn’t have the same compelling opportunities that e-commerce retailers have.
During this time, ZOM was smart and issued more shares to investors that didn’t really understand that their positions were being diluted every time a new stock issuance occurred.
Smarter investors were also driving ZOM stock harder when short positions increased. That allowed them to short squeeze the stock, running it ever higher when the short positions were blown out.
But none of this is about fundamentals or the underlying company. ZOM stock is a plaything for new investors and its backers are happy that all this new money will help operating capital until the company can add more horsepower to its equipment.
This Isn’t the Time
Granted, ZOM stock is trading around the middle of its 52-week range but it’s still up 913% in the past 12 months and 507% year to date.
And it has just one sale.
As I mentioned at the beginning, all this has pushed ZOM stock to a market cap of $1.3 billion, with nothing on paper to show how it got there, at least from the traditional corporate side where revenue and earnings matter.
This stock will be a lot of fun…until it isn’t. And individual investors will be the last ones to know.
Disclosure: On the date of publication, GS Early has no position in the stock featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.