Shares of molecular diagnostics specialist Co-Diagnostics (NASDAQ:CODX) are dropping sharply on Monday and were down by 10.3% as of 3:01 p.m. EDT, after falling by as much as 12.4% earlier today. There was no company-specific news that caused the sell-off, but we can probably attribute Co-Diagnostics’ losses on the market today to bearish commentary from a Wall Street analyst.
Maxim analyst Jason McCarthy downgraded Co-Diagnostics to hold from buy. For what reason? Last year, the company benefited immensely from its coronavirus-related efforts. Co-Diagnostics reported record fourth-quarter 2020 revenue of $27.1 million, largely thanks to its Logix Smart COVID-19 test. For the full fiscal year 2020, which ended on Dec. 31, 2020, the company’s top line came in at $74.6 million, compared to the roughly $215,000 it reported during the fiscal year 2019.
However, McCarthy believes that the growth the company’s revenue experienced last year thanks to the sale of its coronavirus testing solutions has peaked. The analyst expects much less impressive revenue increases in the current fiscal year. McCarthy also believes Co-Diagnostics’ success in the coronavirus testing market is already baked into its stock price.
While it’s always wise to take analyst recommendations with a grain of salt, in my view, McCarthy is onto something. As more people worldwide receive vaccines for COVID-19, the need for test kits for the disease will decrease. And given that this market is highly competitive, these developments will hinder Co-Diagnostics’ top-line growth in the short term as the company finds other ways to generate strong revenue. In the meantime, Co-Diagnostics stock will likely underperform the market. With this backdrop in mind, it might be best for investors to stay away from this healthcare stock for now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.