Recently, **Zomedica** (NYSEAMERICAN:** ZOM**) launched its Truforma diagnostic testing product for cats and dogs in veterinary offices. However, since then ZOM stock has dropped quite significantly. As a result, with the price at $1.08 as of Apr. 28, the valuation is now very attractive.

ZOM stock peaked at a close of $2.70 on Feb. 8. Since then, it has dropped $1.62, or about 60%. Since my last article on the stock on Mar. 23, when it was at $1.80, it is off by 40%.

I believe that this stock is bottoming out. So, now could be a good inflection point to get in.

### ZOM Stock: Sales Forecasts and Valuation

Now that Zomedica has decided to build its own direct sales force, it should be able to develop its sales from the ground up. Analysts now foresee ZOM reaching 2021 sales of $4.4 million as well as $15.2 million by 2022.

Given that Zomedica now has a market value of $1.05 million, this puts the stock on a forward price-sales (P/S) multiple of 69.07 times using the revenue projection for 2022. However, on Feb. 16, the company announced it had raised $200 million in a public offering of shares at $1.90.

In addition, Zomedica said in its January shareholder letter that it had received $90 million in warrant exercise proceeds. That means it now has $290 million in cash, before this quarter’s cash burn.

That means that the net market cap, after deducting cash, is just $760 million, before cash burn. This lowers the valuation to 50 times P/S for 2022. However, the company also believes it will be cash-flow positive by 2023. This implies that revenue will likely double to at least $30 million in 2023. Using that estimate, ZOM stock will potentially have a forward P/S ratio of 25.3 times by 2023.

I also suspect that the business model will be fleshed out well before then, including pricing, marketing and new assay tests available. This could allow the company to become profitable quicker.

Moreover, one *Seeking Alpha* analyst believes that Zomedica will make $50 million in sales by 2022. That lowers its net P/S multiple to 15.2 times ($760 million in net market value divided by $50 million). Based on that, ZOM could have an even lower 2023 P/S ratio, assuming sales continue to rise that year.

### Where Does This Leave ZOM Stock?

In my previous article, I estimated that, by 2024, Zomedica could attain 10% of the forecast $1.4 billion pet diagnostic market. That puts its sales at $140 million with a net forward P/S ratio of just 5.4 times.

I argued that the stock is worth 10 times sales by then, or $1.4 billion. Assuming that about half of the cash remains until then, the market value would be $1.4 billion plus $145 million, or $1.55 billion. That is 48% higher than today’s market capitalization of $1.05 billion.

As a result, my implied price target for ZOM is around $1.63 per share.

### Expected Return Using Probability Analysis

One way to estimate the expected return is to use probability analysis. For example, let’s assume that there is a smaller probability that the stock will fall than there is that it will rise. If there is a 30% chance it will lose 30%, there should also be a 70% probability it will rise 50% from here over the next three years.

This means that the downside risk is -9.0% (i.e., 30% times -30%). The other scenario leads to an upside potential of +35% (i.e., 70% times +50%). Therefore the combined expected return for both possibilities (which add up to 100%) is +26% (i.e., 35% -9.0%). In other words, there is a positive expectation of making at least 26%, even if ZOM stock could drop from here.

This is a good expected return for most investors. However, keep in mind, there is a good deal of risk as well. The company’s sales efforts need to be proven. So, expect ZOM stock to be volatile from here.

That said, the net expected return is likely to be positive. My price target remains at $1.63 per share, some 50% higher than today’s price.

*On the date of publication, Mark R. Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article.*

*Mark Hake writes about personal finance on **mrhake.medium.com** and runs the **Total Yield Value Guide**which you can review **here**.*