How far can a small medical devices company take a celebrity endorsement? The shares of veterinary diagnostics company Zomedica (NYSEAMERICAN:ZOM) surged after an endorsement from Tiger King celebrity Carole Baskin. In response, meme traders bid ZOM stock up sharply. Since the short interest in ZOM stock is high, the news created a dramatic short squeeze.
Zomedica was able to raise a ton of cash from this surge in its stock price. That gave the company a perfect opportunity to go into its first commercial product launch with a full head of steam. The company is launching Truforma, a diagnostics platform, with which it hopes to reinvent veterinary health screening.
Unfortunately, due to a series of accidents and goals that failed to pan out, Zomedica squandered its positive momentum. Now both the general market environment and the company’s fundamentals are looking increasingly troubled.
Pet Enthusiasm Is Fading
A big reason to own ZOM stock has been the long-term megatrend of pet ownership. Birth rates in the U.S. have been in steady decline in recent decades. Yet people still want to have a sense of companionship despite having fewer kids.
As a result, Americans have increasingly adopted pets to enjoy a sort of nurturing experience and avoid having an empty nest.
This trend hit hyper-speed during the worst of the pandemic. Unable to socialize away from home, Americans adopted cats and dogs at unprecedented rates. Not surprisingly, investors gravitated to the stocks of companies that are involved in pet ownership.
The situation has shifted this year, however. Now that the economy is reopening, Americans have been able to resume their normal activities. As a result, some consumers are placing a lower priority on their pets. In some cases, folks are even returning pets that they adopted to shelters.
Investors have noticed this trend, as the shares of Chewy (NYSE:CHWY), Barkbox (NYSE:BARK), and other pet-product retailers have slumped over the past few months.
It’s not fair to blame all of Zomedica’s weakness on this general trend, as the company has had operational issues of its own. However, a portion of the selloff of ZOM stock is due to fading enthusiasm about pets.
Once the pandemic is behind us, however, look for the sentiment towards pet ownership stocks to return to normal, boosting the industry.
Zomedica’s Growing Pains
Zomedica launched its diagnostics platform, Truforma, earlier this year. Veterinarians have not adopted the product quickly, as Zomedica has produced just $15,000 of revenue in each of the past two completed quarters. That’s a terribly low sum for a company that was supposed to be ramping up its commercial sales by now.
A variety of factors have caused the weak sales. For one, Zomedica was planning to market its product itself. Then it decided to have a distributor sell it instead. That distributor agreement hasn’t worked out as well as the company had hoped.
There’s also a shortage of key ingredients used to make the product. According to the company, it “believes that market acceptance of TRUFORMA® has been adversely impacted by delays in the development of our fT4 and ACTH assays by our development partner.” Zomedica does not expect the ACTH assays to be widely available until the end of 2021.
Another issue is management turnover. Back in May, the company’s chief medical officer (CMO), Dr. Stephanie Morley, announced that she was leaving the company. And its CEO will be retiring. For a firm that is still struggling to establish itself, having two senior executives leave at the same time is not a great look.
The Verdict on ZOM Stock
Part of Zomedica’s allure was that it appeared to have a clear path to commercial success. But that path has disappeared in 2021. It’s understandable why a small company working on its first product launch would run into issues.
Still, investors are rightly starting to worry about the number of setbacks suffered by the firm at this point. It’s not hard to forgive a company for some delays of product launches. But when senior executives start leaving the scene, the situation becomes more troublesome.
Simply put, Zomedica has barely generated any commercial revenues yet. It really needs to change that situation before most investors will feel comfortable about ZOM stock once again.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.