Given its recent decline, investors should take a step back from Zomedica (NYSEAMERICAN:ZOM) stock.
The share price of the animal health company has now gone from a pullback and into a steep decline. ZOM stock has fallen more than 12% in the last month and is now below the $1 threshold at just about $0.75 per share.
Zomedica shares are descending into the depths of the penny stock tables. The decline has been persistent over the past two months and there is no indication that the share price has yet reached a bottom.
This should be concerning to investors, even the ones who have been most bullish about the stock up to this point.
The reason for the slide in ZOM stock is poor sales growth of its veterinarian diagnostic equipment and even poorer financial results. It’s not just that Zomedica is not yet generating any profits, it’s also that the company is not yet earning any revenue.
For all of 2020, Zomedica reported no revenue. Zilch. Its most recent quarterly results showed the company had a net loss and for the year ended Dec. 31, 2020 of $16.9 million or $0.05 per share, compared to a loss of $19.8 million or $0.19 per share for all of 2019. Zomedica blamed the loss on research and development expenses.
Sales and ZOM Stock
Zomedica likes to talk a lot about its potential market opportunity, pointing out that it anticipates the animal diagnostics market to be worth $5 billion by 2027.
The company also isn’t shy about highlighting the fact that Americans spent $103.6 billion on their pets in 2020, a record amount. Of that total, $31.4 billion was spent on veterinary care, the second-highest amount by category after pet food and treats.
Zomedica is betting that its “Truforma” platform, which simplifies diagnostic testing in cats and dogs, will be a home run with veterinarians and consumers.
Zomedica claims Truforma provides instant diagnostic test results and eliminates the need to send samples to a laboratory, saving vets and pet owners money. While that sounds great in theory, the company has, to date, only sold one Truforma platform, to an animal hospital in New York City.
Zomedica Chief Executive Officer, Robert Cohen, who was appointed on Jan. 4, is making sales his central focus moving forward. He’ll have to move quickly given the company’s financial performance and deteriorating stock price.
At this point, Zomedica looks like a company that is treading water and trying to keep its head above the surface. Staying afloat long enough to sell more Truforma diagnostic platforms and generate revenue seems to be the logical survival plan at this point.
The company cannot even think about profits at this point in time. Working in Zomedica’s favor is the fact that the company had just over $275 million of cash on hand at the end of February, giving it some leeway.
Convincing investors that it can gain some traction with its Truforma technology is also critically important for Zomedica.
ZOM stock, which trades on the over-the-counter market that is reserved for penny stocks, can’t afford to fall much further from its current level.
Instilling investor confidence that a reversal in Zomedica’s fortunes is underway would go a long way to helping the stock find support.
The share price is currently at the same level it was when Zomedica went public in 2016. The stock’s low point was last September when it was trading at just $0.07.
Steer Clear of ZOM Stock
Zomedica stock was intriguing when it was trading above $2.50 a share in February.
However, it’s now apparent that ZOM stock’s 731% appreciation during the first six weeks of this year was due almost entirely to the shares getting caught in a pump and dump by retail traders who work themselves into a frenzy on the Reddit message boards.
There was nothing substantial underpinning the stock’s meteoric rise and, as a result, the shares are now slipping.
While Zomedica has an interesting technology and potentially lucrative market, it has yet to capitalize on the opportunity in front of it.
With an unproven CEO at the helm, no revenue to speak of, and only one sale under its belt to date, Zomedica remains in start-up mode.
Whether Zomedica can eventually become the company it aspires to is still a big question mark. With the stock falling further and further from its 52-week high of $2.91 a share, investors would be smart to steer clear of Zomedica until its circumstances improve.
ZOM stock is a pass.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.