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Zomedica Stock Looks Tempting Here, But There’s Likely More Downside

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I’ve felt that Zomedica (NYSEAMERICAN:ZOM) stock was miscast as a meme play.

A magnifying glass zooms in on the website for Zomedica (ZOM).
A magnifying glass zooms in on the website for Zomedica (ZOM).

Source: Postmodern Studio / Shutterstock.com

The stock checks off some of the boxes for what constituted a meme stock, though, and for much of the year, it was more of a trade than an investment.

One difference is that, unlike some speculative stocks that may be years away from bringing a product to market (if they ever do), Zomedica did successfully launch its Truforma product in 2021. The company is operating in the growing, albeit specialty, niche of pet care.

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Now add to this the company’s recent acquisition of PulseVet. This acquisition gives Zomedica another product to offer veterinarians. That product is already available and will start delivering revenue to the company’s top line in the next few quarters.

This alone may be a reason to take a speculative position in ZOM stock. On the other hand, better stock-picking minds than mine were suggesting that ZOM stock had a solid base of support around 50 cents a share.

That has turned out to not be the case.

With that in mind, let’s take a look at why ZOM stock may be an interesting trade today, but a better investment in the future.

A Bold Strategy for Truforma

The value proposition for Zomedica is easy to understand. There are several common tests that veterinarians cannot run at their practices.

This adds both expense and time to the diagnostic process. Zomedica’s Truforma product seeks to resolve much of this problem. With the company’s assays, veterinarians would be able to run many of these tests in their offices.

That’s less expense to the vet (and their customers), and results would be available in about 30 minutes as opposed to perhaps several days.

To that end, Zomedica has launched its Customer Appreciation Program. This program gives the Truforma product to select veterinarian offices at no cost. In return, these customers agree to buy assays directly from Zomedica.

The PulseVet acquisition allows Zomedica to offer an additional product with a similar razor-and-blade marketing proposition.

The kind of revenue we’re talking about is not exactly software-as-a-service (SaaS) numbers, but in theory, it could result in a significantly higher market cap (and stock price) for the company in the future.

There are two immediate concerns that come to my mind. The first is that Zomedica only has three of its initial five assays available.

The outlook for the other two assays is looking better, and the company says other assays will be available. However, this may still make the program less appealing.

The second is that the company is relying on its newly formed sales team to market this program to veterinarians. The rationale is that the sales team has the ability to educate and train the offices on how to use the product. This isn’t unheard of, but it’s still a concern.

Should You Speculate in ZOM Stock?

Buying Zomedica stock in the early part of 2021 was an example of paying tomorrow’s price today. The stock got to more than $2 per share because it could.

Without fundamental support in the form of actual revenue, ZOM stock has fallen hard, though, and that fall is sapping some of the optimism for the stock.

On the positive side, there’s nothing in the company’s financials that suggest it will be declaring bankruptcy or creating other headlines that will make ZOM stock worthless.

On the other hand, investors that jump on the stock now are bucking a strong downward trend. Complicating the matter further is that the analyst community is absent from ZOM stock.

One technical indicator in the favor of speculative investors is that the stock’s relative strength indicator is hovering around 30. In the last six months, ZOM stock has given this signal on two other occasions. In both cases, the stock rallied. However, in each case, it started rallying from a lower base. The same is true at this time.

If you don’t have a position in ZOM stock now may not be the right time. If you’re a current shareholder, whether you hang on may depend on when you bought.

With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Chris Markoch 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.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.

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