The last time I wrote about Zomedica (NASDAQ:ZOM) ZOM stock it had crossed under $1. Investors were nervous about its plans to sell its Truforma diagnostic platform for detecting thyroid disorders in companion animals directly to veterinarians, bypassing distributors. 

As I write this, ZOM is now trading around 83 cents, despite delivering first-quarter results that included a $4.04 million loss, up 65% from a year earlier. 

I’m on record stating that Zomedica is a big-time speculative buy (April 2021) and that if I could only buy one penny stock — those trading at $5 or less — it would be Zomedica (March 2021). 

Nothing like putting yourself out there to increase stress levels. But it goes with the territory, so, boo hoo, me.

Anyway, it’s been a couple of months since Zomedia was trading over $2. Before it can get back to those halcyon days, it’s first got to learn to walk before it runs. 

Can it get back to $1 or more? Sure it can. Here’s how.

This One Thing Will Boost ZOM Stock

Whenever I read the words “one thing,” I always go back to the movie City Slickers when Curly — played by Jack Palance — tells Mitch — played by Billy Crystal — the secret of life. 

In Zomedica’s case, the one thing it must do for future success is to continue growing sales. Forget about losses. Focus on sales. At some point, it will gain enough economies of scale that it will be able to develop additional diagnostic products to take it from one-trick pony to bonafide animal health innovator. 

That’s why I agree with the company’s decision to accelerate its direct sales model. There can be no half measures in medical innovation. Its Q1 2021 results show it’s on the right track.

Zomedica launched Truforma on March 15. The quarter ended just 16 days later, which means it generated almost $900 per day in sales. Assuming a typical quarter has 91.25 days [365 divided by 4], it should generate sales of at least $80,000 in the second quarter. Annualize that and we’re looking at $320,000 in sales by the end of Q1 2022. 

With a current market capitalization of $764 million, Zomedica’s equity is valued at almost 2,400x 2021 estimated sales. You can buy competitor IDEXX Laboratories (NASDAQ:IDXX) for 16x sales— and it’s got billions in revenue.

If you’re a risk-averse investor, you should definitely opt for IDXX over ZOM. However, that’s not who I’m addressing in this article. 

I’m talking to the Reddit investor who’s contemplating plunking down money on Naked Brand Group (NASDAQ:NAKD) or some other silly penny stock under a buck. 

I don’t know about you, but if I’m going to make a speculative bet, I’d rather make it on a business that will make a difference in the lives of both companion pets and their owners. Underwear is hardly life-saving, but I digress.

Cash in the Bank Helps a Lot

If you look at Zomedica’s Q1 2021 10-Q, it isn’t the 18,380.1% increase in cash and cash equivalents during the quarter that jumps out at me. It is the 21.4% increase in cash flows used in operating activities during the quarter.

While it sent an additional $465,206 out the door in the quarter, it could have been a lot worse. The same goes for the $1.5 million increase in operating losses. Remember, it’s got $19.6 million in net operating loss carryforwards in the U.S. and $27.8 million in non-capital loss carryforwards, which don’t start expiring until 2035.

The thing that does worry me is the company hired Greg Blair on May 17 as its Vice President of Business Development.

I don’t know the man. I’m sure he’s a fantastic leader. However, the fact that he completed more than 40 transactions at his previous employer — Elanco Animal Health (NYSE:ELAN) — makes me wonder if the $277 million in cash on its balance sheet is about to go up in smoke. 

Again, using a peer as an example, Elanco has a market cap of almost $17 billion and almost $4 billion in sales. It has the size and scale to make 40 transactions. But if you look at its debt — $6.2 billion or 36% of its market cap — you see that they came at a cost to shareholders.  

As I said earlier, you’ve got to walk before you can run.

Bottom Line on ZOM Stock

I’m far from abandoning Zomedica as my favorite penny stock. However, I’ll be watching the company’s every move throughout the remainder of 2021. 

If I even get a sniff of empire-building at the company, I’ll pull my recommendation faster than a Truforma analysis of Rover’s thyroid.

Zomedica gets back to $1 by focusing on one thing. Everything else is just noise. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.