Zomedica (NYSEAMERICAN:ZOM) illustrates the expression “buy the rumor: sell the news.” At the beginning of 2021, ZOM stock was trading at 35 cents a share. However, in mid-March, the stock was up 778%. This is because the company was preparing to launch its point-of-care diagnostic tool, Truforma, for dogs and cats.
However, since the launch of Truforma investors have largely lost interest in ZOM stock. As of this writing, it’s trading at 78 cents per share. That means if you were late to catch that wave, you’re sitting on a loss.
Nevertheless, if you decided to buy Zomedica, you’re an investor who is comfortable with risk. And therefore, I’d encourage you to wait for more news before deciding on what to do with your shares of ZOM stock.
No News is Bad News
I described Zomedica as being an example of investors selling the news. In this case, it’s because investors don’t have a clear picture of how well Truforma is being received. In the company’s last earnings report in May, they reported revenue of $14,124 million. However, Truforma had just launched in March.
That means over the next couple of quarters, investors will get a better idea of what the company’s revenue will look like. The good news is that Zomedica doesn’t need to deliver a home run in revenue. It simply needs to convince investors that it will be able to capture a significant share of the global animal diagnostics segment which is expected to be worth $2.8 billion by 2024.
Some Headwinds Exist
Still, penny stocks are usually penny stocks for a reason. A significant reason why Zomedica may be failing to gain traction is that Truforma treats a small slice of the overall pet care market. If you’ve ever had to wait to receive lab results for your furry family members Ior yourself for that matter), then you understand the benefit of a point-of-care test.
This doesn’t mean that there isn’t a market for Truforma. At its Investor Day presentation in 2020, IDEXX said that only approximately 12% of the global total addressable market for non-wellness diagnostics is being served.
Also, although Zomedica is well capitalized at the moment, there is some concern that it may attempt to go on an acquisition spree. As Will Ashworth points out, the company’s new Vice President of Business Development has a history of completing acquisitions.
Investors haven’t heard anything to suggest that will be the case with Zomedica. But history has a way of repeating itself. Still, this falls into the category of not having any news to go on.
ZOM Stock May Reward a Patient Approach
At different times, retail investors have been upset (putting it mildly) at my objection to certain meme stocks. They must be waiting for the other shoe to drop on my analysis of ZOM stock. However, in this case, they’ll be disappointed.
But I don’t hate the movement. Retail investors are driving this market righ now, I just believe that being selective still matters. In the case of Zomedica, I see a company that is leaning into the red-hot pet care sector. And the company has a product that’s in market.
Plus, ZOM stock is still up over 350% in the 12 months ending July 2, 2021. I believe that the stock was highly overvalued at nearly $2.50. But if the company can capture any significant part of the nearly $3 billion market, buying shares for 78 cents will seem like a steal.
That’s a spread that risk-tolerant traders can get behind. But I would wait for any updates on Truforma’s revenue projections before making a firm decision.
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 InvestorPlace since 2019.