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Should You Buy Zomedica Stock Right Now?

Investors excited about a new diagnostic platform have been pushing shares of Zomedica (NYSEMKT: ZOM) through the roof recently. The stock has already doubled in 2021, and a successful launch this spring could push it up even higher.

People sheltering in place during the COVID-19 pandemic adopted a lot of pets, accelerating a long-running trend toward increased spending on pet care services. Can Zomedica and its patented point-of-care tests for adrenal and thyroid diseases deliver big gains for investors?

Image source: Getty Images.

Let's weigh the big reasons to buy Zomedica stock now against reasons to remain cautious.

Reasons to buy Zomedica

People staying home to avoid spreading the coronavirus adopted a lot of pets in 2020, accelerating demand for veterinary services that was already trending upward. The American Pet Products Association expects total U.S. spending on pets to reach a record $99 billion in 2021.

The sliver of the pet care market associated with diagnostic services is expected to reach $2.8 billion annually by 2024, and Zomedica has a plan to become a major player in this arena. This spring, the company intends to launch Truforma, a tool to help veterinarians detect adrenal and thyroid issues in dogs and cats.

Veterinarians that suspect a hormone condition currently send blood samples out to larger reference laboratories. Zomedica's self-installed Truforma platform is a little bigger than a toaster so veterinarians can provide results on their own without keeping clients waiting.

At recent prices, Zomedica is still a small-cap stock with a market value of about $643 million at recent prices. Shares of diagnostics stocks generally trade at mid-single-digit multiples of annual sales and Zomedica stock could soar if the company quickly gains a significant share of a growing market. Global spending on diagnostic services for companion animals is expected to rise by around 10% annually and reach $2.8 billion by 2024.

Reasons to remain cautious

The Truforma platform relies on Bulk Acoustic Wave (BAW) technology Zomedica licensed from Qorvo (NASDAQ: QRVO) for $5.4 million upfront in 2018. Qorvo's a global semiconductor supplier with more than $4 billion in annual revenue. Qorvo's technology allows a wide variety of electronic devices to communicate, but measuring thyroid hormone concentrations in blood samples is far outside Qorvo's area of expertise.

New smartphones use BAW filters from Qorvo to isolate specific frequency bands, and coating them the filters with biologic reagents appears to allow them to measure biomarkers such as concentrations of circulating hormones. While the technique seemed successful during small verification tests, Zomedica still hasn't completed larger validation studies with any of its assays yet.

In the spring of 2020, Zomedica completed thyroid hormone verification studies using around 100 samples and the results correlate strongly with standard tests. Zomedica has since blamed the COVID-19 pandemic for slowing down validation studies to be run on much larger batches.

Just a minute

Zomedica intends to launch Truforma at the end of March, but that won't happen if the company can't produce successful validation data. That means there's still a chance the company won't have any source of revenue for the foreseeable future.

One year is a very long time to prepare for a validation study and this slow pace of development at a time the company should be pushing forward at full speed is more than a little disturbing.

Investors eager to invest in Zomedica should at least wait until after Truforma tests have been successfully validated, and until after the company show signs of a successful commercial launch.

The toaster-sized Truforma platform offers on-site convenience, but we don't know if veterinarians will be willing to invest in one. The diagnostics industry is intensely competitive and there's a real chance that Zomedica won't be able to find a pricing structure that lures veterinarians away from the testing procedures they're already used to.

This is an interesting stock to keep your eyes on, but it probably isn't worth the risk right now.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy.


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