Is Zomedica Overvalued

Is Zomedica stock overvalued? Zomedica shares soared near the beginning of 2021, but then plummeted over 80% from their highest share price.

In retrospect, it seems like shareholders had pie-in-the-sky dreams for Truforma, the company’s point-of-care diagnostic system.

Hopes were that the diagnostic system would gain fast traction, but it never materialized – by July 2021, Zomedica had less-than-stellar sales of $29,817. So, why are Zomedica shares trading at over 40x forward sales? 

Zomedica Target Market Size Is Massive

Zomedica (ZOM) is a veterinary medicine health company.

Pet care in the United States has been a fast growing industry over the last few years. According to the APPA, or American Pet Products Association, vet care and pet product sales are expected to be over $32 billion in 2021.

If ZOM management hit key milestones to capture even a small fraction of this addressable market, the company could see revenues in the millions.

But so far, the company’s pride and joy, Truforma, simply isn’t selling.

Zomedica also faced the sale of its distribution partner, Miller Veterinary Supply; that’s presented a challenge.

While the company blames its lackluster performance on this unexpected acquisition by Patterson Companies, there’s a bit more here to chew on.

What is Zomedica’s Truforma?

Truforma is a diagnostic kit for veterinarians that lets them process tests onsite rather than waiting for lab results. This speeds up the whole vet visit process, saving both the vet and the animal owner time and money.

The drawback of this technology is that Truforma only offers three tests presently. Zomedica has new tests in the pipeline currently, and adding just two to Truforma’s capabilities is expected to boost its adoption in the marketplace.

Plus, Zomedica recently invested $70.9 million in Pulse Veterinary Technologies, a move that could lead to future acquisitions. Pulse’s technology – using high-energy sound waves for animal cell stimulation – has multiple applications in the veterinary medicine space.

Just How Bad Are Zomedica’s Financials?

Well, you wouldn’t call it abysmal – not yet, anyway.

But it really is debatable if, and how much, of Zomedica’s problems are really tied to current and previous business partners. What’s not up for discussion is the fact that financial performance to this point has been rather dismal.

That $29,000 figure above? That’s just over $14,000 is Q1 and just over $15,000 in Q2 – if that’s progress…

And at the same time that sales aren’t raking in the cash, the company is hemorrhaging cash to the tune of a $4.7 million loss in Q2 alone. Another $4 million loss was reported in Q1. How is the company still operating as a going concern?

Well, its cash position remains robust, with a cash and cash equivalent reporting of about $276 million at the end of Q2 2021. And the company is debt-free.

Nevertheless, if Zomedica continues losing $18 million each year, it won’t take long for those cash reserves – from shares sold earlier in 2021 – to dry up.

The company sold more than 91 million shares, further diluting its existing share values, which caused ZOM to fall much more than it likely would have.

The most worrisome aspect for Zomedica, aside from dwindling sales and having just one product, is the fact that larger companies don’t see the attraction ZOM has to offer.

Does that mean Zomedica stock is a sell? Hold your horses.

Is There a Long-Term Potential for Zomedica Stock?

Maybe ZOM didn’t get out of the gate with the start it hoped for. Does that mean there’s no investment opportunity here?

Not necessarily.

Zomedica might have supply challenges, but it’s steadily obtaining new customers, and it’s working on its profitability path. Once it gets all these ducks in a row, it can bolt out of that gate and give investors the value they had hoped for.

In spite of the company’s challenges, die-hard investors aren’t throwing in the towel just yet. In fact, the stock still ranks in the top 50 on some investment platforms. There are reasons to believe this stock hasn’t seen its best day yet.

The company recently started a new sales program allowing customers to obtain a Truforma instrument with one condition – if they agree to purchase the test cartridges. In less than a month, Zomedica had 41 new contracts, 25 of which had taken ownership of a Truforma device.

With the development of two new tests nearing completion, this is one of Zomedica’s smartest moves to date.

What Does Truforma Mean for Zomedica?

Zomedica could earn investors of various walks of life, from everyday pet owners to employees and owners at vet clinics. Sure, Truforma’s full array of testing supplies isn’t ready just yet, but it doesn’t mean the company can’t turn the ship around.

But what about marketing?

On the company website, Zomedica posts webinars for vets and veterinary medicine professionals – but here’s the thing about the web, it’s not Field of Dreams out here. You built it – so, they’ll come. Right?

Wrong.

Zomedica offers a wealth of information on their site and in their webinars, but they don’t seem to announce these items frequently in public press releases. How come?

On the plus side, their investor relations page provides a signup for email alerts and RSS feeds. This is helpful for keeping investors engaged – but when your company’s marketing is eerily quiet?

At ZOM’s current closing price, the company can’t sit back on its heels, waiting for investors to come. ZOM needs to bring investors in or go directly to them.

Is Zomedica Stock Overvalued? – The Bottom Line

On its face, ZOM is a B2B company. Truforma is a product meant for veterinary hospitals. The vet uses the product to offer patients a point-of-care testing option – think horse breeders who can’t exactly bring their animal to the clinic…there’s real value there.

There’s a double-sided value proposition. It’s good for vets and it’s good for pet owners – and Zomedica doesn’t appear to be targeting the ultimate end-user, the pet owner.

Zomedica needs to be a bit more aggressive on the Truforma marketing front. Pet owners may be intrigued by the business; it’s a demographic with disposable income which translates to potential investment dollars.

ZOM is risky, yes – but you never know. ZOM shares in the future could spike when the business model woes subside and the revenue picture becomes clearer.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.