Retail traders continue to make their exit from Zomedica (NYSEAMERICAN:ZOM) stock. It may be a while until they return at the levels last seen during the meme stock wave earlier this year. As discussed before, the company continues to ramp up the commercialization of its Truforma diagnostic system. It is also still experiencing challenges in growing its sales.
However, two major developments may bode well for the company going forward. First, acquisition news. On Oct. 1, Zomedica announced plans to buy PulseVet for $70.9 million. Second, a big change in its C-suite. Larry Heaton, with 35+ years of medical device industry experience, is its new CEO.
In the immediate term, the challenges with Truforma will likely remain the most important concern for investors today. But in time, the potential from both developments could start to be reflected in Zomedica’s valuation.
Better yet, once its supplier issues with Truforma get resolved, and sales pick up again? Sentiment for the stock could shift back to positive.
Risk runs high here. Heaton’s work is cut out for him. Truforma is not yet out of the woods with its current problems. But given that it continues to have massive potential, some may find it a risk worth taking at today’s prices (around 51 cents per share).
The Story Is Largely the Same for ZOM Stock
So far in October, there has been a lot more to talk about Zomedica. However, the main “story” with this stock (the rollout of Truforma) remains largely unchanged. Confident that it can grab a large share of the pet diagnostics equipment market, it is aggressively building out its sales force.
The problem? Delays with its supplier in getting the test assays used with its equipment. These cartridges aren’t the only main way the company plans to make money from this device. Until it has cartridges available, few veterinary practices are going to buy its system.
With this issue expected to last through year’s end, results in the coming quarters will likely be as underwhelming as last quarter’s numbers. ZOM stock will likely struggle to recover in price over the next few months. It’s going to be awhile before this early stage company will again have the chance to prove itself to investors.
Having said that, investors with a high appetite for risk, and a willingness to go against the grain, may want to buy today. Potential still runs high for Truforma. Today’s headwinds could end up being mere hiccups in hindsight. Not only that, its M&A and CEO change news may be a sign of further positive developments to come.
Improved Prospects May Be Around the Corner
For now, ZOM stock will likely stay held down from its assay supply issue. But this issue could be resolved within the next few months. Once test assays again become available, the company could see a major influx of sales of its flagship pet diagnostic platform.
But along with this, some more positive news may come about for Zomedica. Its above-mentioned deal to buy PulseVet may be a sign that, instead of putting all of its chips on Truforma, the company may instead be deciding to spread its bets widely. With its high cash position ($276 million), it likely has the capacity to both scale up Truforma, as well as develop new revenue streams. Whether through M&A, or organically.
The entrance of Heaton in the CEO role also bodes well for Zomedica’s prospects. His track record at other early stage medical device companies could mean it now has the expertise needed to scale this company into a profitable business.
Putting it simply, Truforma remains a product with high potential. New possibilities could be opening up, as a result of its most recent developments. Despite the high pessimism still surrounding it, the company still stands to see its situation improve. In turn, see its stock price get out of its current rut.
The Bottom Line on Zomedica
As I discussed last month, there’s no getting around the high level of risk that comes with this stock. Further bad news with its supplier issues could sink it much lower. If it can’t get the Truforma rollout back on track, a recovery just isn’t going to happen.
Nevertheless, coming in with a “B” rating in Portfolio Grader, I wouldn’t write it off completely. Truforma still has a shot of becoming widely used in veterinary medicine. The company, with its new CEO and recent M&A news, may have a lot more on its side now than it did only a few weeks ago.
Cautious investors may want to hold off, as no matter what direction it goes (higher or lower), it’ll do so in a big way. But if you can stomach the risk, and have patience to wait out its current troubles, ZOM stock may be an opportunity.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place