What’s next for Zomedica (NYSEAMERICAN:ZOM) stock? The success of its Truforma pet diagnostic platform will determine its value over the long-term. That’s helping to sustain the stock’s momentum today. But, expect another factor to determine its short-term price movements.
Which factor? The one that’s played a larger role in this penny stock’s immense surge since October. I’m talking, of course, about the “meme stock” trend. Some may be tired of hearing about the stocks that have gone “to the moon” thanks to hype on platforms like Reddit’s WallStreetBets. But, this trend may have longer legs than its skeptics originally thought.
How? The recent stimulus bill provided most Americans with a $1400 cash infusion. Many are putting this money towards its intended use. But, others are using it to finance another roll of the dice. Analysts at Deutsche Bank estimate up to $150 billion of stimulus money will find its way into stocks.
In short, this could give “meme stock madness” one last leg. Yet, while that could point to a rebound for this stock, don’t bet the ranch on this outcome being certain. With little backing it at today’s prices, it won’t take much to send it further down towards previous prices.
Since buying it today is more a bet on market psychology than a bet on Truforma’s potential, the best move remains: stay away.
How The Stimulus Could Sustain ZOM Stock
Many market observers may believe it’s a question of “when,” not “if,” the bubble in meme stocks bursts. But, it’s hard to be confident that the recent madness is about to come to a halt. As I broke down above, the stimulus package may have provided $150 billion in dry powder for retail traders.
And, it’s doubtful they’ll use it to buy index funds like the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Instead, much of it is getting plowed into speculative “meme plays” like Zomedica.
As the U.S. Treasury doles out the checks, and said checks fall into the hands of meme stock traders, ZOM shares could remain steady at or above today’s levels (around $1.46 per share). That being said, this temporary shot-in-the-arm hardly bolsters the bull case.
Looking again at its fundamentals, and taking into account recent developments, it’s clear ZOM stock remains inflated relative to its actual prospects. And, it’s a prime candidate to tumble once the music finally stops.
Long-Term, Still a Stock to Avoid
With it announcing its first sale of Truforma ahead of schedule, I’ll concede Zomedica is making progress living up to expectations. It’s a step in the right direction. But, it’s far from being a big enough step to justify this stock’s current $1.6 billion market capitalization.
As InvestorPlace’s Dana Blankenhorn broke it down March 26, there are many unknowns when it comes to projecting how many veterinary practices will end up purchasing this company’s flagship diagnostics system. Big ticket buyers, like the large pet care hospital that made the aforementioned initial Truforma purchase, may be willing to become an early adopter.
But, for this stock to justify its current valuation, it’ll have to gain critical mass—ASAP. And, even if every pet care operation from nationwide chains to mom-and-pop practices suddenly decided Truforma was a “must have,” it’s still debatable whether that would be a level of sales sufficient enough to support a $1.6 billion value for the company.
Worse yet, odds are it’ll take years (at best) for this product to reach mass levels of sales. In short, with the company years away from possibly growing into its valuation, the whims of speculators will continue to drive price action.
Bottom Line: Little Reason to Give Zomedica a Second Thought
More retail money is pouring into the stock market. These retail investors continue to treat stocks like numbers on a roulette wheel, as opposed to representing a proportional share of a business. In short, there’s plenty pointing to continued inflated prices for stocks like Zomedica.
This may mean one last parabolic move before the party’s over. But, don’t let this possibility tempt you. This stock remains a gamble, pure and simple. A gamble on the continuation of an investing trend that turns the traditional fundamentals-based approach to investing on its head. But, while it may not be over yet, the madness will eventually fade.
Sure, the jury’s still out regarding how long this meme stock frenzy could continue. But, while it may be months until the bubble really bursts, it’s still best to stay away from ZOM stock.
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On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.