Is the current slump in Zomedica (NYSEAMERICAN:ZOM) stock a buying opportunity?
Investors who are interested in buying stock of the Ann Arbor, Michigan-based animal health company may want to pull the trigger with the share price down 47% since March 15. At just $1.32 a share, ZOM stock is now down nearly 60% from its all-time high of $2.91 reached in early February of this year. The question for investors is: Has the stock bottomed or does it have further to fall?
Nothing specific has happened with Zomedica to cause the current slump in its share price, which fell as much as 10% in intra-day trading on April 5. The main catalyst for the current pullback appears to be retail investors on the r/WallStreetBets Reddit channel moving onto new targets and the broader market rotation into value and cyclical stocks.
Zomedica has not made any announcements or issued any news that would pressure its share price. ZOM stock rocketed 731% higher in January and early February after it was targeted along with other speculative “meme stocks” by Reddit investors.
However, unlike many of the other meme stocks driven higher by crowds of retail investors, Zomedica actually has some future potential to recommend it.
The company has developed a proprietary technology called “Truforma” that streamlines and simplifies diagnostic testing in cats and dogs. Zomedica claims that the platform provides instant diagnostic test results and eliminates the need to send samples to a laboratory, saving veterinarians and pet owners time and money.
Zomedica has high hopes for the Truforma platform, which it is aggressively marketing to veterinarians across the U.S. According to the company, there is a largely untapped animal diagnostics market that could be worth more than $5 billion in the next six years. Management is betting that the convenience and cost savings of its Truforma platform will make it a hit with veterinarians.
Solid Cash Position
While the sales pitch sounds intriguing, Zomedica still has a ways to go to translate its lofty ambitions into income. The company didn’t generate any revenue in 2020 and posted a net loss of $16.9 million for the year.
Zomedica remains in start-up mode. The company did have $277.5 million of cash on hand at the end of February, giving it some room to maneuver going forward. The company’s market capitalization currently stands at more than $1.5 billion.
Zomedica announced on March 16 the first official sale of its Truforma platform to a veterinarian in the U.S. Zomedica’s first customer was an animal hospital in New York City. The company says it is now building its sales force in order to scale the marketing of its Truforma platform.
The first sale moved Zomedica into the commercialization stage with its technology. Previously the company had been in the development stage with a lot of research and development (R&D) costs and no real revenue.
Of course, analysts and investors want to see more in terms of sales, but Zomedica has at least begun to move forward with commercialization, which is reason for optimism. Additionally, the validation data for the Truforma platform (indicating how accurate its test results are) has been overwhelmingly positive, giving veterinarians reason to trust the technology and buy the equipment.
Consider Small Position in ZOM Stock
It’s still early days for Zomedica and its technology. Investors should view the company and ZOM stock as a tech start-up that carries a significant amount of risk at this stage. But with a share price under $1.50, it might be worthwhile for investors to assume that risk given the potential reward.
Everything will depend on Zomedica’s ability to dramatically increase its sales in coming months and quarters. Any misstep on the sales front and the company’s stock is sure to be punished. But if the company meets or exceeds expectations, than investors could benefit from a strong breakout in Zomedica’s share price.
Given the current situation, investors should consider taking a small position in ZOM stock to start. Keep a close eye on the share price. If it has bottomed, turns the corner, and begins rising, then buy more as you ride the escalator up. But be sure to keep the initial position small enough that you don’t lose your shirt should the stock continue declining. As a penny stock, there is no real analyst coverage of the stock or a price target placed on it at this time.
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On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.