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Zomedica: Mismatch Between Valuation and Growth Profile

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Growth investors have increasingly jumped aboard small cap stocks of late. With meme stock mania once again picking up steam, certain stocks such as Zomedica (ZOM) are in the spotlight of retail investors.

Zomedica is a company that’s already provided investors with impressive near-term returns in rapid fashion. Since opening the year at around $0.35 per share, ZOM stock soared to a high of $2.91 on February 8th. Any stock that’s a near-10 bagger in five weeks certainly fits the description of a meme stock. (See ZOM stock analysis on TipRanks)

A variety of social media-related pumps have driven these significant gains. Of interest was an early mention in January of ZOM stock by Carol Baskin, star of the widely-popular Netflix Tiger King series. The stock popped 230% in a single day on one mention.

Hey, with Carol Baskin on your side, what can go wrong? Similar returns may be on the horizon for aggressive investors hoping for another quick-hitter here.

Growth Catalysts Provide Intriguing Setup for ZOM Stock

The reality that Zomedica is a pre-revenue stock should not really shock investors. The rise of SPACs have allowed for a whole range of pre-revenue stocks to be publicly listed sooner than would otherwise be possible via traditional IPOs. (See TipRanks' IPO Calendar)

Zomedica’s business model is intriguing, at first glance. The company provides innovative veterinarian diagnostics tools. These tools help to provide veterinarians with faster and more effective data to diagnose specific illnesses in companion animals. The illnesses targeted by the company’s flagship Truforma tool are mainly adrenal and thyroid disorders.

Indeed, it’s important to note that as of Mid-March, Zomedica is no longer a pre-revenue company. The company announced the commercial launch of its diagnostics tool, providing speculators with some potential data with which to consider buying this stock. This commercial launch also aligned with a distribution partnership with Miller Veterinary Supply. In other words, it appears the ducks are all in a row for investors in ZOM stock.

From here, the company’s rate of revenue growth will be the key metric on which investors assess this stock. Zomedica’s Truforma platform sure seems to have a lot of potential in its core market.

With pet adoptions soaring during the pandemic, the companion animal market is one that growth investors have targeted of late. Reports indicate the global companion animal market could hit $2.8 billion by 2024. This is up from a baseline of $1.7 billion in 2019, a near-double-digit CAGR. For growth investors, this is music to the ears.

However, Zomedica’s current valuation might not stack up to its total addressable market.

Valuation Concerns Driving Poor Stock Performance of Late

While Zomedica did see its share price soar from around $0.35 to nearly $3 in the span of five weeks, today investors can pick up shares of ZOM stock for $0.9 at the time of writing.

Why the turmoil? Well, a number of high-flying meme stocks have since settled down to earth on valuation concerns. Indeed, at its peak, Zomedica was valued at roughly the size of the entire global companion animal diagnostics market. It simply didn’t make sense.

At a valuation of roughly $800 million, one could make the argument that Zomedica is fairly valued today. It’s a company with tremendous growth potential in a fast-growing market, and retail investors like it.

However, it’s still pretty expensive when one factors in some pretty heavy competition in the veterinarian diagnostics space. Zomedica isn’t the only game in town, and how market share is ultimately divided among this company and its peers remains to be seen.

TipRanks Smart Score

According to TipRanks’ Smart Score analysis, ZOM scores a 4 out of 10. That means the stock is likely to perform in line with market averages.

Bottom Line

Whether Zomedica can ultimately domineer the global companion animal diagnostics space is unknown. That's what investors are betting on with ZOM stock today.

There are certainly catalysts in Zomedica’s corner right now. In a hyper-speculative market, such stocks tend to do well.

However, over the longer-term, these stocks tend to be valued according to their fundamentals. We just don’t know how quickly this puppy is going to grow from here. Accordingly, there’s reason to be skeptical of this stock at this price.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.