Is Zomedica a Buy Under $1?

The veterinary-focused company Zomedica Corp. (ZOM), which is based in Ann Arbor, Mich., develops products for the needs of companion animals. The company is also developing and commercializing its primary product candidate, TRUFORMA, which is a diagnostic biosensor platform for detecting thyroid disorders in dogs and cats and adrenal disorders in dogs.

The stock skyrocketed in price earlier this year, driven by retail investors' interest, securing its name alongside the other meme stocks that topped the headlines at that time. ZOM traded at around $3.00 during its rally. Furthermore, the stock has gained 455.7% over the past year and 121.7% year-to-date to close its last trading session at $0.51. However, ZOM has slumped 61.3% over the past six months and 10.2% over the past five days.

ZOM’s momentum at the beginning of the year can be attributed mainly to investors’ optimism surrounding the growth of the pet-care industry. Studies show that pet adoption increased substantially during the pandemic last year, leading to an increase in the number of pets being seen by veterinary practices. This led to optimistic growth expectations, attracting retail investors’ attention to the industry.

Investors’ bullish sentiments caused ZOM shares to trade at extremely high valuations. In terms of trailing-12-months EV/Sales, ZOM is currently trading at 7,573.41x compared to the 7.12x industry average. Also, ZOM’s13.11K trailing-12-months Price/Sales ratio is significantly higher than the 7.54 industry average.

Here’s what could shape ZOM’s performance in the near term:

Weak Second-Quarter Financials

For the three months ended June 30, 2021, ZOM’s revenue and gross profit were just $15,693 and negative $20,183, respectively. ZOM reported no revenues or gross profit for the same period last year. Its loss from operations grew marginally from its year-ago value to $5.33 million, while its net loss and comprehensive loss declined 11.3% from the same period last year to $4.71 million. In addition, it's selling, general and administrative expenses rose 261.3% year-over-year to $5.04 million. Also, its trailing-12-months EPS and EBITDA came in at negative $0.07 and 18.06 million, respectively.

Operational Strategy Shift

ZOM unveiled its plans to expand its direct sales organization earlier this year while phasing out its distributor-based sales efforts. The company expects this transition to provide a stronger foundation to build the marketing and sales of its primary product candidate TRUFORMA® and any future products developed or acquired by ZOM. However, the improvement attributed to this operation switch from a distributor-based sales model to a direct sales organization is expected to take significant time to be reflected in the company’s financials.

POWR Ratings Reflect Bleak Outlook

ZOM has an overall F rating, translating to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

ZOM has an F grade for Quality. This is consistent with its negative gross profit margin of 39.29% compared with the 54.88% industry average. The company has a Value grade of D, which is in sync with its stretched valuation.

Of the 210 stocks in the F-rated Medical – Pharmaceuticals industry, ZOM is ranked #208.

Beyond what I have stated above, one can also view ZOM’s grades for Momentum, Growth, Sentiment, and Stability here.

View the top-rated stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

With the substantial increase in pet adoption during the pandemic and the stay-at-home mandates, pet care products and veterans were highly demanded. Also, analysts’ projections indicating pet care industry growth attracted investors’ attention to ZOM's shares.

ZOM benefited significantly from the industry tailwinds at the beginning of the year. However, the upside was short-lived. So, considering the company’s weak bottom line and stretched valuations, ZOM is best avoided now.

How Does Zomedica Corp. (ZOM) Stack Up Against its Peers?

While ZOM has an overall POWR Rating of F, one  might want to consider investing in the following stocks from the same industry with an A (Strong Buy) rating: Novartis (NVS), Johnson & Johnson (JNJ), and GlaxoSmithKline PLC (GSK).

ZOM shares were trading at $0.51 per share on Monday afternoon, down $0.01 (-1.15%). Year-to-date, ZOM has gained 121.16%, versus a 17.84% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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