Shares of veterinary health company Zomedica (NYSE:ZOM) skyrocketed earlier this year, but have since plunged more than 80% from their peak. Investors had high hopes that its point-of-care diagnostics system, Truforma, would gain a lot of traction fast. However, that hasn’t been the case, with the company managing a measly $29,817 in sales in the first six months of 2021. Still, ZOM stock trades at more than 40 times forward sales.
The pet care industry in the U.S. has grown immensely in the past few years. According to the American Pet Products Association, more than $32 billion will be spent on veterinary care and product sales this year. If Zomedica can grab even a fraction of its total addressable market, it could generate millions in revenues.
However, the issue is that Truforma isn’t selling much. The company has also faced a lot of challenges concerning its distribution partner. If it can work out the kinks, sales are likely to increase at a healthy pace.
Nevertheless, with no clarity in its path to profitability and massive shareholder dilution, ZOM stock is easy to avoid at this stage.
ZOM Stock’s Weak Earnings Report
Zomedica hasn’t had a lot of luck as far as its top- and bottom-line results are concerned. After posting a sizeable net loss of $4 million in the first quarter, it followed it up with another loss of $4.7 million.
For the six months ended in June, Zomedica saw a net loss of $8.7 million, or one cent per share.
Revenue for the three months was at a minuscule $15,693, and $29,817 for the six months ended June 30. Sales activity has been limited, and the situation is unlikely to improve anytime soon.
Perhaps the only positive for the company is that it is debt-free and has $276.2 million in cash. However, with the company losing an equivalent of $18 million annually, its cash balance will be affected.
The worrying bit for the company is not its cash balance, but its dwindling sales. Moreover, with it being a one-product company, its attractiveness to larger companies is also limited.
Long-term Opportunity Is There for ZOM Stock
Zomedica hasn’t had the start it would’ve hoped for, but there’s no denying the long-term opportunity of investing in the company. It has plenty on its plate at this time regarding supply, gaining new customers and working out a path to profitability. Once it streamlines these elements, it can push on fast and offer a lot of value to its investors.
Its shoebox-sized Truforma kit allows vets to effectively process assays onsite instead of waiting for a lab to process them. This speeds up the process and saves a significant amount of money. Though it currently offers just three assays at this time, having an additional two assays is likely to boost market adoption significantly.
Moreover, the company has also invested in Pulse Veterinary Technologies, which could be the start of more acquisitions down the road. Pulse offers an electro-hydraulic shock wave technology that has numerous veterinary applications. It makes use of high-energy sound waves to stimulate animal cells.
Zomedica CEO Robert Cohen said, “During our extensive due diligence process, we consistently were impressed by both the strength of the PulseVet team led by Adrian Lock and the solid business that they have built.”
ZOM stock has sold off considerably in the past six months after the lackluster release of the Truforma platform. Zomedica has failed to expand its customer base by a substantial margin and continues to face supply-side challenges. The long-term opportunity cannot be ruled out with ZOM stock, but it is remarkably overpriced at this stage.
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.