At first glance, Michigan-based veterinary testing and pharmaceutical product specialist Zomedica (NYSEAMERICAN:ZOM) might sound like a great company to invest in. After all, ZOM stock is really cheap, and pet healthcare certainly sounds like a high-growth niche market.
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On the other hand, we have to wonder why Zomedica’s shares are so cheap. A bit of technical analysis will reveal that a too-fast, too-far rally by the shares led to a crash of epic proportions in the past.
At the same time, informed investors must bear in mind that Zomedica is a company in transition. Zomedica’s recently installed CEO seems to be on a mission to rescue not pets, but a financially strapped business.
As we’ll see, Zomedica’s recent press releases are noble attempts to drum up enthusiasm among skeptical stock traders. Unfortunately, those attempts will likely be in vain, as Zomedica’s data simply doesn’t justify an investment in its stock.
A Closer Look at ZOM Stock
While it’s difficult to prove this assertion, it certainly appears that ZOM stock received a huge boost from Reddit’s users.
As you may recall, early 2021 was a time when meme-stock traders were very powerful. Troubled businesses with low share prices were ideal short-squeeze targets for Reddit’s retail warriors.
Thus, it’s likely that the Reddit short-squeeze mob orchestrated the rally by ZOM stock from 23 cents in late 2020 to a 52-week high of $2.91 on Feb. 8, 2021.
The problem with these stock rallies fueled by social media fans is that they’re often followed by horrendous crashes. That can happen when traders get bored with a stock and move on to another short-squeeze target.
It’s been painful to witness the collapse of ZOM stock during the past year. Recently, the stock traded at around 38 cents.
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Its shareholders, if they choose to hang on, should hope that the stock recovers the 50-cent level within the next few months. Otherwise, more declines could be in the cards.
Checking the Company’s Pulse
After reading Zomedica’s third-quarter financial results, investors will need to be very motivated to stand by the company. The press release stated that Zomedica’s total Q3 revenue was, believe it or not, just $22,514.
Furthermore, Zomedica reported that, during the nine months that ended on Sept. 30, 2021, the company only generated $52,331 in revenue and incurred a staggering net earnings loss of $15.1 million.
So what has Zomedica been up to lately? And most importantly, what is the company doing to secure its financial future?
A recent press release provides some insights, though it contains much more pep talk than hard financial data. Apparently, the training of Zomedica’s sales professionals on its recently acquired shock/sound-wave-therapy-product, ProPulse, was completed. And “several customers” subsequently bought the system and agreed to obtain (for free) the company’s pet diagnostics platform known as Truforma. (I’ll explain the story behind the latter arrangement below).
There was also enthusiastic talk of upcoming conferences, peppered with effusive chatter about the marketing push for ProPulse as well as Truforma.
Disappointingly, that press release didn’t provide any hard data to show that Zomedica’s situation is improving. Next, we’ll turn to an update provided by the company’s CEO, Larry Heaton.
Literally Giving It Away
This update was released after Heaton had been in the CEO position for “just over 60 days,” so we shouldn’t expect the company to have changed much at that point.
Still, the update was an opportunity for the newly installed CEO to explain how Zomedica plans to become profitable. However, Heaton’s plan might not impress the company’s stakeholders.
According to the CEO, Zomedica is offering veterinarians a “Customer Appreciation Program” which places a Truforma instrument “into the clinic with no capital outlay.”
Hold on! Is Zomedica so desperate that the company is literally giving away its flagship product?
“Since we are not selling the instrument, we are forgoing up-front capital revenue and considering the cost of the instruments to be a form of customer acquisition cost,” Heaton continued.
So the answer is yes, Zomedica is indeed giving away Truforma diagnostic instruments for free. And by the way, Heaton reported that “The program has been well received by Veterinarians.”
Isn’t that a shocker? Please pardon my sarcasm, but it’s discouraging to witness Zomedica potentially burning through more capital by giving away a pricey product.
The Bottom Line
The company’s strategy will either turn out to be brilliant or disastrous. Are you really prepared to wager your hard-earned capital on the success of Zomedica’s “Customer Appreciation Program?”
What the owners of ZOM stock really want and need now is specific financial data which indicates that the company has a thriving, profitable business. Unless that data is provided soon, it’s going to be awfully difficult to recommend ZOM stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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