For a stock that traded sub-$0.10 per share last year, Zomedica’s (NYSEMKT:ZOM) rise this year has been quite incredible. Investors will note that ZOM stock nearly hit $3 per share during the retail investor-driven melt up earlier this year.
However, since then, ZOM stock has been on a steady decline. Today, shares trade at the $1 level again, as investors shift focus among their favorite lottery ticket-like bets today.
Zomedica is a company with some pretty intriguing technology in the veterinary diagnostics space. The company’s TRUFORMA platform is the lynchpin of what investors hope will be a dominant product in a high-margin growth diagnostics sector. This platform is aimed at providing veterinarians with quick and effective diagnosis of common illnesses found in pets. These include various thyroid and adrenal disorders.
On March 16, Zomedica announced the first commercial sale of its TRUFORMA platform. The company made good on its promise to begin commercialization of this diagnostics tool in the first quarter. Indeed, all seemed to be going in the right direction. At the time of the announcement, shares were above the $2 level and enthusiasm with this stock was high.
However, today, much of this enthusiasm appears to have faded. With shares now below the $1 level, some serious concerns are starting to build.
Here are two such concerns I’d invite investors to consider today.
ZOM Stock Listing May Once Again Be In Jeopardy
One of the catalysts behind the rally in ZOM stock earlier this year was the announced removal of Zomedica from the list of NYSEAmerican noncompliant issuers.
As most investors are aware, when a stock trades below the $1 level for a certain amount of time, a company is put on notice of noncompliance. Unless the stock price rises above the $1 per share level, a reverse split may be required for said company to regain compliance.
Now, reverse splits don’t change anything about the fundamentals or valuation of a given company. It’s simply a mathematical solution to get around de-listing concerns.
However, these moves tend to be negatively viewed by the market. Thus, the longer ZOM stocks trade at these levels, further bearish sentiment could take hold. For a stock that is largely traded on sentiment, this could be a bad thing for investors in Zomedica today.
Speculators Could Be Looking Elsewhere for Growth Right Now
As I pointed out in a recent piece, there’s speculation building that speculative buyers may be looking to other stocks right now.
A recent report from Bloomberg suggested this could be the case. This report highlighted other interesting options that appear to have diverted investor attention away from Zomedica.
Indeed, Zomedica is certainly one of many speculative options available to investors right now. If this report is to believed, the short-term attention spans of “Reddit traders” could be reason to get in and out quick with such trades. If that’s the case, then the price action around ZOM stock could turn ugly pretty quick.
Now, there are companies with far worse value propositions trading at even more ridiculous valuations today. Zomedica is far from the most egregious meme stock rally I’ve seen thus far. However, I think a significant portion of this stock’s performance this year has nothing to do with the company’s fundamentals, but everything to do with the speculative fervor on Wall Street (or more accurately, Main Street).
As such, I’d advise investors late to the party to consider whether they want to show up to this dance. The music appears to be slowing, but hasn’t stopped yet. That’s a dangerous entry point for speculators looking to make a quick buck.
Conclusion
I think Zomedica’s core platform is intriguing. The TRUFORMA platform looks great, sounds great, and appears to be gaining traction in the marketplace.
However, we won’t know the extent of the company’s sales until they report Q1 numbers. And given the fact that the first sale took place near the end of Q1, I anticipate revenues will remain near-zero for this past quarter.
That said, forward guidance will be what investors will want to look for. If the company can put forward a growth trajectory that investors can buy into, perhaps the company’s $1 billion market cap will make sense.
The diagnostics segment of the global companion animal market is expected to be an opportunity of approximately $2.8 billion in 2024. As long as Zomedica can show it a realistic path to capturing a third of this market, investors may want to consider this stock.
However, this is still an early-stage growth bet. Zomedica is a company that’s not yet proven it can capture this level of market share yet. Investors may require more substantial near-term results before jumping in.
Accordingly, this isn’t the stock for me right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
