Retail investors have by-and-large thrown in the towel on Zomedica (NYSEAMERICAN:ZOM) stock. Starting late last year, shares in the pet health care company took off, thanks to the buzz surrounding its Truforma testing product. Then, with the first wave of “meme stock madness,” prices went parabolic yet again, briefly hitting prices nearing $3 per share.
Since then? It’s been a consistent move back to sub-$1 per share price levels. Unlike some other stocks popular with Reddit investors, Zomedica didn’t even see much of a boost from the second meme stock wave that cropped up in late May and early June.
At today’s prices (around 63 cents per share), it’s down about 70% from its peak. Even so, it’s still not exactly a screaming buy, due to its still-inflated valuation. That’s not to say it’s a name you should totally write off, no matter the price.
It’s still uncertain whether Truforma’s success will live up to expectations. But if the exodus out of formerly hot names like this one continues, it may just well fall to a point where risk/return is in your favor.
ZOM Stock and Commercializing Truforma
Back in March, Zomedica made its first commercial sale of Truforma. Yet, since then, it’s been tough to get a gauge of this product’s long-term prospects.
A big part of the issue is the company’s decision to go with a go-it-alone sales strategy. Many smaller medical products companies opt to partner with a larger company for distribution. For example, Senseonics (NYSEMKT:SENS) teamed up with Ascensia Diabetes Care to market its diabetes monitoring product.
Instead, Zomedica is building out its sales infrastructure. This move has its pros and cons. The company is licensing the technology behind Truforma from semiconductor company Qorvo (NASDAQ:QRVO). But without a distribution partner, it won’t have to share an even larger amount of its revenues with third parties, which is a positive.
The negative, of course, is the time it takes to build a large enough sales force from the ground up. As discussed in its July 6 shareholder update, the company’s making progress here. By year’s end, it anticipates having 15 direct sales representatives. By next year, it also sees it beginning to market Truforma internationally as well.
However, this still indicates that the true payoff for Truforma remains years away. It’s not worth paying up now, for success that may or may not end up happening. But as impatience rises among its more short-term minded base of investors, ZOM stock could eventually fall to a more reasonable entry price.
Buy Zomedica If It Falls to 35 Cents
Despite its recent fall, ZOM stock is still at “priced for perfection” levels. Today’s stock price gives it a market capitalization of around $720 million. Even when taking into account its cash position ($276.6 million), that’s rich, considering its sole analyst coverage projects $4.4 million in sales this year and $15.2 million in sales next year.
At 35 cents per share (or lower), risk/return will be much more in your favor. As I discussed in my last article on ZOM stock, if the company makes progress either turning Truforma into a hit, or demonstrating that it’s still set to become a hit, shares could bounce back above $1 per share.
If you buy in at a low enough price, that could mean a triple-digit percentage gain. At the same time, at 35 cents per share, the stock won’t be trading that much higher than the cash on its balance sheet (around 28 cents per share). This may mean minimal risk of further declines.
What about the risk of cash burn? Unlike some clinical-stage biotech stocks, which can sometimes deplete cash faster than they can raise it, that’s likely not a problem here. Even if its cash burn goes up big from current levels (around $4 million per quarter), due to the Truforma commercialization ramp-up, it’s going to be a while until it’s fully exhausted.
Hold Off for Now
Based on the company’s statements in its most recent investor update, it’s making slow-and-steady progress with commercializing Truforma. Yet, progress isn’t happening fast enough for the investors who bought this stock for fast profits, not as a buy and hold position to held for several years.
As the rest of 2021 plays out, and Zomedica is still far from seeing the big payoff for its flagship product, expect more still holding it today to jump ship.
If a continued sell-off pushes ZOM stock down to 35 cents per share, consider it worth the risk.
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.