It’s holding steady now, but Zomedica (NYSEAMERICAN:ZOM) stock could be on the verge of pulling back to a favorable entry point. Earlier this year, the pet healthcare play, known for its Truforma testing platform, was one of the hottest stocks among speculators on Reddit. But the bulk of these fair-weather investors are long gone.
The meme stock trend is living on with the names that started it, like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). But it’s unlikely that retail investor enthusiasm will drive similar outsized moves in ZOM stock.
Some who bought it near its high of almost $3 per share may still be holding onto positions. But as progress remains slow, expect those investors to cash out as well. Zomedica stock is likely to fall even lower as a result.
That may be bad news for investors buying it now. Yet for those patiently waiting for ZOM stock to move in their favor, lower prices mean it’s time to roll the dice. With its cash position providing a floor, consider shares a worthwhile speculative play if the stock falls back below 50 cents per share.
ZOM Stock May Be Ready to Move Lower
What’s the latest with Zomedica? Outside of hiring Greg Blair, a former Elanco Animal Health (NYSE:ELAN) executive, as its new vice president of business development, not much. Given his background, Blair’s hiring may be a sign that the company is gearing up for an acquisition spree.
But until it starts announcing deals, let’s assume Zomedica is still focusing on ramping up Truforma’s commercialization. As it stands now, the process remains in its early stages. Given that the company only started selling Truforma on March 15, its impact on the last quarterly earnings report was minimal.
Admittedly, this could change in the coming quarters. Even a modicum of Truforma sales may be enough to drive ZOM stock back up above $1 per share. But that’s assuming one more round of meme stock enthusiasm is possible. Those who bought the stock near the top were badly burned, and they may not want to enter a position again.
Truforma could one day end up being a profitable product. But best-case scenario, it’s going to take years for this to happen. And investors who bought at or above today’s price of about 80 cents, expecting fast profits, aren’t going to wait around. Yet once they start throwing in the towel and shares pull back towards their pre-hype prices, those sitting on the sidelines may cautiously pounce.
At 50 Cents and Below, Well Worth The Risk
If investors sour even more on ZOM stock, how low can it go? Previously, I made the case that a reasonable floor for its shares is the value of Zomedica’s net cash position. Based on a reported total cash of $276.6 million, the floor is around 28 cents per share. Should you wait until it hits these levels before making ZOM stock a buy? Not necessarily.
Barring a big-time stock market correction, shares likely won’t fall to prices at or below the cash on its books. But, you don’t have to wait for Zomedica to become a “net-net” stock. Buying it at, say, 50 cents per share may still be worth the risk. Yes, at that price level, it’ll still be trading at a premium to its cash position. But that’s a price point where the risk-to-return ratio is in your favor.
At worst, at that price level, ZOM stock falls back to around 28 cents per share. At best, Truforma shows signs it’s going to be a hit, and investors bid the stock back up to about $1 per share.
Yes, Zomedica’s cash position isn’t going to stay put. As it burns through more cash, the floor will likely drop further. But with $276.6 million total cash and $2.6 million in quarterly cash burn, even if Zomedica starts putting more money into its organic growth, it’s going to be years before the reserve is depleted.
With Payoff Years Away, Wait Patiently to Pounce
The story of Zomedica and its Truforma product will take years to play out. Investors, by and large, have figured this out. But there are still some holding onto ZOM stock, hoping that another zoom to $2 or even $3 per share may be in the cards.
But if investors still holding it with “diamond hands” throw in the towel, ZOM stock could fall to price levels of 50 cents and below, where the risk will have more favorable returns. If you’re looking to speculate on this situation, wait for another pullback to those levels before buying.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
