According to psychological research, acts of cruelty toward animals are symptomatic of deep mental disturbances. Usually, this dynamic implies that the opposite is true: people who care for animals are simply better human beings. Therefore, most everyone can appreciate the bullish narrative for Zomedica (NYSEAMERICAN:ZOM) stock.
Tied to a veterinary diagnostics equipment provider, ZOM stock benefits from powerful sentimental catalysts.
Furthermore, U.S. pet owners (or pet parents if you prefer) have been opening their wallets at an unprecedented rate.
According to the American Pet Products Association (APPA), the underlying industry range up $103.6 billion in sales last year.
That’s up nearly 7% from the $97.1 billion generated in 2019 and up more than 14% from the $90.5 billion posted in the prior year.
All that despite the overwhelmingly negative impact of the novel coronavirus. Such statistics demonstrate that pet owners — at least so far — are willing to ride through life’s various twists. You couldn’t ask for better outside fundamentals for ZOM stock.
Of note too is that from APPA’s data, the vet care and product sales segment totaled $31.4 billion in 2020.
This aggregate accounted for over 30% of total pet industry sales. Again, this is very good news for ZOM stock.
So, why can’t Zomedica seemingly pull itself out of literal penny stock territory?
Veterinary Care Segment Poses Risks for ZOM Stock
What perplexes ZOM stock advocates is that the vet care and product sales segment is second only to pet food and treats. Moreover, APPA estimates that this segment’s sales will rise to $32.3 billion, a bump up of nearly 3%.
With pet parents willing to dish out more for their furry friends, shouldn’t ZOM rise in anticipation of improving sentiment?
After all, retail revenge is a real phenomenon. As millions of worker bees quarantined at home, they didn’t have to spend on commuting costs and office attire. Also, they had to forego many discretionary purchases they intended to transact last year.
This setup created pent-up demand, which may filter into every avenue of the economy.
As previously established, Americans seemingly will spare no expense to care for their four-legged friends (if they even have legs). Again, we have another catalyst for ZOM stock.
While the surface narrative supports the broader thesis for Zomedica, the issue is that growth in the vet care segment appears not to be keeping pace with others. For instance, the APPA estimates total pet industry sales to hit $109.6 billion, which is up nearly 6% from the prior year.
If these estimates hold, the pet food and treats segment will rise by 5%, while “other services” will rise by almost 20%. Supplies, live animals and over-the-counter medicines will improve by 5.9%.
In other words, at 2.9%, the vet care and product sales segment will benefit from the smallest growth rate in the industry.
That’s not necessarily a dealbreaker for ZOM stock, but it may point to why investors — as opposed to crowd chasers — are concerned about Zomedica.
Veterinary care is expensive. While I get that the company’s core products are designed to reduce cost burdens, overall, veterinary care may be prohibitive for many pet parents; hence, the surprisingly small growth rate.
The Economy Is Also a Looming Concern
Following the Great Recession, American families had to endure incredible hardships, but among the saddest developments of that time was pet abandonment.
The responsible ones gave up their pets for adoption. Others simply hightailed it, leaving their non-human family members out on their own.
I mention this terrible blight not to make you feel bad, although it’s admittedly a rough story. Rather, I don’t believe that pet sentiment was so much worse a little more than a decade ago. Unfortunately, when push came to shove, the animals got the boot.
For me, this is another risk for ZOM stock. You can already see through industry data that veterinary-related care features the smallest growth rate. But that small growth rate can turn into zero growth or even go negative if economic pressure ramps up.
It must be said that social media could potentially bid up ZOM stock. But if you’re going for this angle, just be aware that the present fundamentals do not support your thesis.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.