Zomedica Corp. (NYSEAMERICAN:ZOM) finally has a catalyst that could be a game-changer. It has reported $4.1 million in revenue for full-year 2021. This is big news for ZOM stock, which has a market capitalization of $367.6 million and a big milestone to celebrate. The reason is that in 2020, reported revenue was non-existent.
In the first nine months of 2021, the cumulative revenue was $82.32 thousand. Not impressive, but better than zero.
My previous article article on ZOM stock was titled “Stay Away From Zomedica for These 3 Key Reasons.” These reasons included a weak business model, stiff competition, and the fact that I considered it neither a value stock nor a growth stock.
How was it possible for Zomedica to generate revenue of $4.1 for the full-year 2021? In the past nine months, this figure would seem impossible based on recent trend history. It is not magic, although, it is perhaps a magical move. To be more accurate, it is probably the result of a strategic business decision: an acquisition.
The Acquisition of PulseVet Brings Results
In October 2021, Zomedica announced the acquisition of PulseVet for $70.9 million in an all-cash transaction. PulseVet specializes in veterinary regenerative medicine. Larry Heaton, Zomedica’s chief executive officer (CEO), provided some updates in January. He stated that the company is seeking further opportunities “through acquisition of product lines or companies and/or through co-development or co-marketing agreements with companies offering innovative products that benefit both Veterinarians and the patients that they serve.”
The logical question to ask is: how can a small firm with a market capitalization of $367.6 million seek more acquisitions?
The answer is in the strong balance sheet. As of Sep. 30, 2021, Zomedica had $271 million in cash. But that was before the cash was invested in the acquisition of PulseVet.
Reasons to Worry for ZOM Stock
The company announced that more information about the financial and business progress in 2021 and the outlook for 2022 will be provided during a presentation by CEO Larry Heaton during the first quarter (Q1) Virtual Investor Summit on Mar. 8.
Zomedica has only provided us with selective key metrics, like the 73.9% gross margin. They also announced that the TRUFORMA® product revenue grew to $73,000 in Q4 2021, an increase of 224% over its Q3 2021 revenue of $22,500. The firm released the 10-K and full-year 2021 report on Mar. 1.
I admit this is a strange move as we do not yet know anything about the profitability, free cash flow, latest cash figure, capital expenditures, and operating costs. It seems as if Zomedica wanted a boost to its stock price, which is happening. For example, during the active trading session on Feb. 28, the stock gained nearly 15%.
If the company had great results in the key metrics mentioned, why would it not mention them already? From a financial perspective, this does not make any sense. If the numbers such as profitability and free cash flow are not good, then this selective data is a bad joke from the management.
Shareholders have been diluted in the past year, with total shares outstanding growing by 3.4%. Additionally, in 2020, a net loss of $16.91 million was reported, along with a a free cash flow of negative $16.25 million.
The Bottom Line on ZOM Stock
It is positive that the TRUFORMA® product revenue grew significantly in Q4 2021. Further developments are expected in 2022 to “commercialize new TRUFORMA assays for fT4 and ACTH, for adrenal and thyroid disease panels, and continue to work with our partner on the development of assays for Cobalamin, Folate and cPL, for non-infectious gastrointestinal disease screening.”
If Zomedica manages to further commercialize the TRUFORMA® platform, a revenue increase should be expected. The bottom line now for Zomedica is to give it time to prove it has made a shift in its business model.
Do not rush to buy the penny stock until an improvement is made in profitability and sales growth proves it is not transitory.
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On the date of publication, Stavros Georgiadis, CFA 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.
