Zomedica (ZOM) is a veterinary health company creating point-of-care diagnostics products for companion animals, including dogs, cats and horses. Launched in May 2013, the company is a loss-making enterprise, weighed down by extensive R&D activities and an inability to generate revenue in the interim.
The veterinarian diagnostics group hopes to expand its way out of a tumble following a near delisting in 2020’s fourth quarter. The purchase of PulseVet, a company treating veterinary patients through electro-hydraulic shock wave technology, underscores its ambition.
But Zomedica remains on a downward trend unabated by acquisition and changes in the boardroom. Promises of R&D-driven profitability continue to flag against distribution issues with its truforma product.
ZOM stock analysis
Shares briefly touched $2.98 at close on June 22 2018. By the end of the year, the price had fallen to $1.25, and to a low of $0.07 by September 9 2020.
That low imperiled the stock’s listing, sitting below $0.1 close to the thirty day threshold, before rebounding.
Zomedica briefly returned to 2018 highs as it became party to a short squeeze by retail traders in the first two months of 2021. Investors flooded into the stuttering stock to push shares as high as $2.57 on 8 February. It didn’t last long, with the share price falling to 0.76 by April 20.
Zomedica’s current stock price of $0.5051 (as at close on 11 October), gives the company a market cap of just over $500m.
The 52-week resistance at $2.91 now appears anomalous, with the stock closer to breaking its $0.063 support. That support level represents a delisting danger zone below the $0.01 the company precariously flirted with last year.
Innovating for tomorrow
Zomedica remains in the development stage. It posts minimal revenue and a stream of losses. In 2019, the company recorded a £19.784m loss, which has improved slightly in 2020 to a loss of £16.9m.
On the other hand, Zomedica’s research and development (R&D) budget has expanded from $1.16m in 2016 to £10.3m in 2019 and £8.04m in 2020, suggesting the company is increasing its focus on innovating its range of products and services.
Most recently, the company acquired PulseVet for $70.9m. Zomedica used part of its $267.1m cash reserves to fund the purchase. PulseVet provides electro shock therapy which helps with conditions including tendon and ligament healing, bone healing, osteoarthritis, chronic pain and wound healing.
Zomedica has developed its Truforma Platform, a blood-testing kit for veterinarians. The technology, which speeds up assaying for clinical vets, and generated its first sale in March. In the first quarter of 2021, Truforma sales generated $14,124 in revenue. The company’s move from development into a revenue-generating product could help to strengthen Zomedica’s balance sheet.
Boom in pet ownership
Consumers built an “emotional stockpile” of pets to offer comfort and entertainment in the early months of the pandemic, according to the American Pet Products Association (APPA).
They report the Animal Veterinary Medical Association’s (AVMA) findings that US vets experienced a 50% increase in new pets per week between March and August 2020, while Banfield Pet Hospital experienced 500,000 extra visits in 2020 than a year before. Overall, APPA estimated that vet care and product sales grew by 7.2% between 2019 and 2020.
The data also suggested that pet adoptions declined by 27% between May and December 2020, with 32% of dogs and 35% of cats taken from rescues and shelters.
A forecast by Mordor Intelligence predicts the pet market to grow 5.3% a year between 2020 and 2025. The research company sees the global veterinarian market growing by 6.94%. That’s relatively bearish against Market Data Forecast’s 7.94% forecast growth per annum through 2026.
Inflationary pressures and renewed consumer bearishness
But rises in pet ownership and the demand for vets might not last.
Where 2020 was defined by low inflation and high consumer sentiment, buoyed by stimulus cheques and a raft of other government support, 2021’s potential for stagflation could stymie confidence-driven spending – particularly as lockdowns end and an array of purchasing options returns.
Data released by the Bureau of Economic Analysis (BEA) at the US Department of Commerce shows that since the introduction of stimulus cheques in March 2021 US disposable personal income has been regulated, increasing by only 0.1% in August compared to 23.7% in March.
These trends could feasibly hurt Zomedica. A study during the last recession by the Journal of Applied Animal Welfare Science shows that while relinquishment of companion animals is rare during downturns in the economic cycle, new adoption is much less resolute. For Zomedica, it may mean less justification for the expansion of vet practices, and less demand for their diagnostics products.
Key risks for Zomedica
Weak balance sheet
Zomedica’s fundamentals can’t be ignored, even though they reflect the company’s forward-looking plans. The company posted a loss of $8.7m on $29,817 of revenue in the first half of 2021, with losses split evenly between quarters. There is currently no forward guidance from Zomedica on when the company will swing into profit, which could be a concern for investors.
End of development
There are signs in the earnings report that the development phase is ending. R&D costs fell 93% in the first-half of 2021 from a year ago, down to $4.5m. Completion of the truforma product contributes to an overall reduction in development activities that the company hopes will quickly transform into sales.
Overall, quarterly findings reflect a holding pattern in relation to more in-depth annual figures released in February, with cash assets added since the end of December 2020 providing further breathing room through end year 2023, according to the company.
Analyst views on ZOM stock news
“Last week’s acquisition of Pulse provided a much needed short-term reprieve to the declines that the stock has been suffering this year,” Victoria Scholar, head of investments at Interactive Investor, told capital.com.
“While the $70.9m all-cash deal could help with Zomedica’s growth ambitions, it has failed to uphold the share price with the stock reversing last Friday’s sharp gap higher over the course of this week.
“Shares have slumped by more than 80% since the peak in February with the next support level at $0.50.”
Zomedica stock price prediction
The small number of analysts offering a ZOM stock prediction remain pessimistic about the stock’s outlook, despite reductions to R&D costs and the promise of future revenue streams.
HC Wainwright appears to be one of the few investment banks offering coverage. Their analyst, Swayampakula Ramkanth, gave Zomedica a ‘buy’ rating and lowered the price target from $0.50 to $0.30 on 16 November 2020.
Among the algorithm-based forecast services, Gov Capital gives the stock a one-year price target of $0.0185, a 96.75% contraction. Such a decline would push the company into delisting territory.
Wallet Investor is more optimistic but also think that a contraction is likely. It forecasts a one-year price target at $0.289.
LeoProphet is pricing the stock slightly higher still, issuing a 0.35 price target for October 2022.
Note that predictions are often wrong. You should always conduct your own research before making any investment or trading decision.
One-year Price Target (USD)
Zomedica’s stock is currently stuck in a holding pattern as investors await changes to the company’s fundamentals and a stronger understanding of its direction of travel. But as R&D costs begin to ease and revenue channels open, investors could be cautiously optimistic that the company’s market cap will grow with profitability. But for Zomedica, the road to convincing investors remains a long one.
Zomedica’s weak balance sheet could be a reason for the stock’s underperformance. The company has posted regular losses, and there is no indication on when it will turn a profit.
The decision to buy Zomedica shares must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. And never invest money you cannot afford to lose.
The company’s weak balance sheet and pessimistic analyst price targets might suggest that Zomedica isn’t a good buy. But there is a possibility that the fundamentals may improve as the company moves from innovation into profitability.