Zomedica (NYSEAMERICAN:ZOM) is a penny stock I want to root for. The company operates in a sector that is trending towards significant growth. And although it is not yet profitable, Zomedica has successfully brought a product to market. Simply put, ZOM stock has a story behind it. And that’s more than you can say for some of the other meme stocks.
In March, Zomedica brought its TruForma diagnostic platform to market. TruForma is used to detect thyroid disorders in companion animals at the point of care. I’ve mentioned in prior articles, there is a need for a product like this. Currently, such tests must be done offsite which adds time and expense to a diagnosis. Both of which can create worry for pet owners.
I’ll admit to chickening out on ZOM stock. In early February, I suggested that Zomedica was not as speculative as investors may have thought. But I wrote the article right before the company’s stock got caught up in the meme stock mania.
And so it was, just a month later, I was walking back my bullishness a little. I did see the stock having a path for risk-tolerant speculators. But I’ll admit to wavering on my own personal conviction.
Zomedica Is Testing Investors Patience
A common theme among InvestorPlace writers is Zomedica’s need to deliver consistent revenue. The belief isn’t necessarily that the company can’t generate any revenue; it’s that it won’t be able to generate the amount of revenue it needs to justify its valuation.
Plus, as Nicholas Chahine wrote, investors don’t particularly like change. So they didn’t react favorably to Zomedica’s plans to move to a direct sales model for TruForma. But even without that narrative, Zomedica’s revenue path has obstacles.
First, as I’ve mentioned in a prior article, Zomedica licenses a portion of the intellectual property that goes into TruForma. That will be a fundamental drag on revenue, which is exactly what the company needs.
Plus, it’s also fair to state that TruForma only addresses a small fraction of the addressable pet diagnostic market. As I’ve also written it’s a hammer that relies on a specific type of nail.
Be Prudent In Evaluating ZOM Stock
Like many meme stocks, it’s not Zomedica’s fault that ZOM stock has the valuation it does. However, the company will be responsible for where it’s stock goes from here. I tend to agree with Josh Enomoto’s perspective that the direct sales model may be just what the company needs in order to focus on revenue growth.
But it looks like that may not be the company’s plan. In May, Zomedica announced it was hiring Greg Blair, formerly of Elanco Animal Health (NYSE:ELAN) as Vice President, Business Development. The stated reasons is to lead the company’s acquistion and licensing efforts.
Zomedica’s CEO Robert Cohen said of the company’s strategy, “This will be a selective process, focused on expanding Zomedica’s capability to be a valued partner to the veterinary clinic by bringing novel and valuable offerings that enhance both animal and practice health.“
Bottom Line on Zomedica
If the company attempts growth through acquisition, it will burn through its cash reserve. From a fundamental perspective, the company’s cash reserve is one thing that Zomedica has going for it.
Putting that issue aside for the moment, in that same announcement, the company disclosed that its current president, Dr. Stephanie Morley, is leaving the company. I get it, the two announcements may be completely unrelated. However, if investors were nervous about the company moving to a direct sales model, this can’t be welcome news either.
Speculators will have to exercise prudence. Zomedica may be playing the only hand it can play. But that doesn’t mean you have to go along for that ride.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.