Development stage veterinary diagnostic and pharmaceutical company Zomedica Corp. (ZOM) develops products for companion animals such as cats and dogs and horses. Its stock has soared 940.2% over the past three months primarily because Carole Baskin of Netflix, Inc. ‘s (NFLX) hit show ‘Tiger King’ promoted the company in a show in January. Reddit users then grabbed the stock, which led to a short squeeze.

However, ZOM  has retreated  5.7% over the past month and 15.9% since announcing its first sale of Truforma products on March 16. Furthermore,  the company recorded no revenue in fiscal 2020 and a $16.9 million net loss for that period.  So, ZOM’s near-term prospects don’t seem  promising.

Here are the factors that we  think could influence ZOM’s performance in the coming months:

Unsuccessful Commercialization of Truforma

Investors were looking forward to ZOM’s first sale of its Truforma diagnostic product, which uses Bulk Acoustic Wave (BAW) technology developed by Qorvo, Inc. (QRVO). The  product delivers  a non-optical and fluorescence-free detection system for use at the point-of-care. However, ZOM has lost nearly 16% since its first sale of the platform on March 16,  and the stock continues to suffer.

Selling Shares to Stay Afloat

On February 16, ZOM announced that the underwriter of its previously announced public offering had exercised in full it’s over-allotment option to purchase additional common shares of the company at a price  of $1.90 per share. ZOM  has generated roughly $200 million in  proceeds from the stock sale and intends to use it for the continued development of its diagnostic platforms, strategic acquisitions and for other general corporate and working capital purposes.

The company closed a $173.50 million offering in February, further diluting existing shareholder’s ownership percentage in the company. ZOM also generated roughly $30 million last  July 2020 through a public offering of its common shares.

Consensus Price Target Indicates Downside

Wall Street analysts expect ZOM to hit $0.30 in the near term, which indicates a potential decline of 85.7%.

Unfavorable POWR Ratings

ZOM has an overall D rating, which  equates to Sell in our POWR Ratings system. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.

Our proprietary rating system also evaluates each stock based on eight different categories. ZOM has a D grade for Value also. This is consistent with its trailing-12-month price-to-book ratio of 27.03x, which is 461.3% higher than the industry average  4.82x. The stock has a D grade for Stability also.

Click here to see ZOM’s ratings for Growth, Momentum, Sentiment, and Quality.

Out of 239 stocks in the F-rated Medical – Pharmaceuticals industry, ZOM is ranked #207.

Better than ZOM: Click here to access several other top-rated stocks in the same industry.

Bottom Line

ZOM operates in a small niche in  the pharmaceutical space, focused solely  on developing products for companion animals. So, a lot is  riding on the company’s commercialization of its Truforma diagnostic product. However, ZOM has so far failed to impress investors and the stock plunged sharply after its  first sale. So, we think it best to avoid ZOM until the company announces a  major breakthrough that can justify its current valuation.

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ZOM shares were trading at $2.00 per share on Monday morning, down $0.15 (-6.98%). Year-to-date, ZOM has gained 767.30%, versus a 4.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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