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Co-Diagnostics Sales Will Slow, But the Stock Is Still a ‘Buy,’ Says Analyst

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Friday was not a fun day to be invested in Co-Diagnostics (CODX). Shares of the Coronavirus test maker sold off after the company reported fiscal Q4 and full-year 2020 financial results

The good news is that Co-Diagnostics exceeded expectations for revenue, reporting $27.1 million where Wall Street had anticipated only $25 million. The bad news is that despite "beating" on sales, Co-Diagnostics "missed" on earnings, reporting only $0.43 per share in profit, versus the $0.48 that analysts had forecast.

And the worst news of all is that Co-Diagnostics said its Q1 revenues will be no more than $20.5 million -- more than $1 million short of analyst's hoped-for number. So even much of the "beat" the company scored on revenues last quarter, will be eaten up by the "miss" expected for Q1.

H.C. Wainwright analyst Yi Chen ascribed the weaker than expected earnings primarily to Co-Diagnostics getting hit with a bigger than expected tax bill. Moreover, the 5-star analyst noted that Co-Diagnostics earned a respectable $1.52 in profit for the year as a whole. Relative to the company's current price of $8.73 a share, that works out to a P/E ratio of just 5.7.

That seems kind of cheap for a growth company working in the health sciences in the middle of a pandemic. But it's only really cheap if Co-Diagnostics can continue earning the kinds of profits that it is currently earning.

In the age of COVID-19, "PCR molecular testing [will] remain... the gold standard for COVID-19 testing as COVID-19 vaccines get widely distributed," argues Chen, and Co-Diagnostics' Logix Smart COVID-19 test kits can therefore be expected to score "strong sales in the coming quarters." The reason being: PCR tests are very sensitive to the presence of COVID-19. In a largely vaccinated population, where patients infected with COVID despite their having been vaccinated will exhibit lower "viral loads," antigen tests (an alternative to PCR tests) may not be sensitive enough to detect the virus, and thus may deliver more "false negative results."

But PCR tests will still work. Thus, the more vaccinated the world gets, the more essential PCR will be to confirm that a vaccinated person has not been infected or re-infected.

But if this is the case, you may wonder, why is Co-Diagnostics warning that its revenues will be down next quarter, not up? Chen explains that despite the need for PCR tests post-vaccination, it's illogical to expect that the volume of test kits shipped would reach the peak levels recorded during the height of the pandemic in 2020.

For this reason, Chen is lowering his full-year sales forecast for Co-Diagnostics to $74.5 million this year, and cutting his estimated profit per share by more than half, to $0.74 per share. At that level of profitability, Co-Diagnostics sells for a more reasonable 13.1 times forward earnings -- more expensive than 6.4x earnings to be sure, but the stock is still a "buy," says Chen.

Accordingly, the analyst slashed his price target on CODX shares to $16 (from $30). Yet, the new figure still implies ~86% upside from current levels (See CODX stock analysis on TipRanks).

CODX has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent ratings; Buy and Hold. (See CODX stock analysis on TipRanks)

To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.