Shares of pet healthcare company Zomedica (NYSEAMERICAN:ZOM) have had an impressive turnaround this week. ZOM stock has gained an whopping 51.4% on the back of renewed retail trading interest in the stock.
The gains come after the shares had lost a near equal amount in the three months ending Aug. 18. Yet despite this week’s pop, weak fundamentals, unimpressive top-line growth and supply-side issues limit the stock’s attractiveness.
Zomedica’s flagship product is a diagnostics platform called Truforma, which enables veterinarians to detect animal pathologies. It essentially streamlines the decision-making process, enabling veterinarians to begin treating patients — primarily dogs and cats — sooner.
The innovative platform launched in March this year but so far hasn’t gained as much traction as its shareholders would’ve hoped for. The novelty of the platform cannot be denied, though, and some catalysts could drive growth in the future. However, Zomedica is far from where it should be, and its bullish narrative is hardly convincing at this stage.
ZOM Stock Sees Supply-Side Troubles
CEO Robert Cohen highlighted the troubles in ramping up the commercial launch of Truforma in the second-quarter update. He associated the supply-side weaknesses with its partners. Its distribution partner, Miller Veterinary Supply was acquired by Patterson Companies recently. The unexpected sale of its key distributor has compelled the company to alter its sales strategy.
It announced that it would be transitioning to a direct sales organization. Zomedica “believed have impacted its ability to market our products effectively, we will be accelerating that transition and the building of a direct sales organization.”
Moreover, Cohen believes that the delays in completing its fT4 and ACTH assays have also impacted Truforma’s performance. He stated that “We expect that market adoption of Truforma will be challenging until our fT4 and ACTH assays are available for commercial release.”
Making Little Progress
One thing that is unequivocal at this point is Zomedica’s poor financial performance. In the second quarter, it reported just $15,693 in revenues. In the first quarter, its sales were at $14,124; therefore, it hasn’t made much progress. Moreover, it posted a healthy net loss of $4.7 million in the quarter, $700,000 more than the first quarter.
Perhaps a bright spot of its financials is its strong cash position. Its cash balance was at $276 million, which has a lot to do with the sale of over 91 million shares this year. Hence, the increase in its cash till came at a heavy price to its shareholders.
From a business standpoint, there are some positive developments which you should probably keep an eye on.
It implemented a program that allows customers to receive Truforma instruments if they purchase assay cartridges. Additionally, the company has signed 41 placement agreements and installed 25 Truforma systems under this program. This move could prove to be instrumental for the company in expanding its product lineup.
Zomedica must continue to add value for its customer base to ramp up top-line growth.
Final Word On ZOM Stock
It’s been quite an eventful year for Zomedica and ZOM stock. After skyrocketing earlier in the year, ZOM stock has come crashing down, as its underlying business has failed to impress investors. Zomedica has failed to ramp up sales of its Truforma platform, raising concerns about the product’s long-term growth runway.
It does have some exciting developments on the cards, and the transition to a direct sales model pays dividends down the line. However, the transitory phase should take long before it proves fruitful for the manufacturer of the diagnostic. Moreover, the direct sales strategy could also backfire, requiring it to reestablish relationships with the original distributor or pursue new ones.
Zomedica has a lot to prove at this stage before investors can consider ZOM stock as an attractive investment.
On the date of publication, Muslim Farooque 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.