ZOM Stock: Will the acquisition of PulseVet continue to generate sales?
Zomedica Corp. (NYSEAMERICAN:ZOM) finally has a game-changing catalyst. It recorded a turnover of $4.1 million for the year 2021. This is big news for ZOM stock, which has a market capitalization of $367.6 million and a milestone to celebrate. The reason for this is that in 2020 reported income was non-existent.
In the first nine months of 2021, cumulative revenue was $82.32 thousand. Not impressive, but better than zero.
My previous article on ZOM stock was titled “Stay Away From Zomedica for These 3 Key Reasons”. These reasons included a weak business model, fierce competition, and the fact that I didn’t see it as either a value stock or a growth stock.
How was Zomedica able to generate $4.1 in revenue for the year 2021? Over the past nine months, that number would seem impossible based on recent trending history. It’s not magic, although it may be magic. To be more precise, it is probably the result of a strategic business decision: an acquisition.
Acquisition of PulseVet pays off
In October 2021, Zomedica announced the acquisition of PulseVet for $70.9 million in an all-cash transaction. PulseVet specializes in regenerative veterinary medicine. Larry Heaton, CEO of Zomedica, provided some updates in January. He said the company seeks new opportunities “through the acquisition of product lines or companies and/or through co-development or co-marketing agreements with companies offering innovative products that benefit both to veterinarians and to the patients they serve.”
The answer lies in the strong balance sheet. As of September 30, 2021, Zomedica had $271 million in cash. But that was before the money flowed into the acquisition of PulseVet.
Reasons to Worry About ZOM Stock
The company announced that more information on financial and business progress in 2021 and outlook for 2022 will be provided during a presentation by CEO Larry Heaton at the virtual First Quarter (Q1) Investor Summit on March 8.
Zomedica only provided us with selective key metrics, such as gross margin of 73.9%. They also announced that revenue from the TRUFORMA® product increased to $73,000 in the fourth quarter of 2021, a 224% increase from its revenue of $22,500 in the third quarter of 2021. The company released the 10-K and the 2021 annual report on March 1.
I admit it’s a strange decision because we don’t yet know anything about profitability, free cash flow, latest cash figure, capital expenditure and operating costs. It seems that Zomedica wanted to increase its share price, which is happening. For example, during the active trading session on February 28, the stock gained almost 15%.
If the company has achieved excellent results in the key indicators mentioned, why would it not already mention them? From a financial point of view, it makes no sense. If numbers like profitability and free cash flow aren’t good, this selective data is a bad management joke.
Shareholders have been diluted over the past year, with the total number of shares outstanding increasing by 3.4%. Additionally, in 2020, a net loss of $16.91 million was reported, along with negative free cash flow of $16.25 million.
ZOM stock essentials
It is positive that revenue from the TRUFORMA® product increased significantly in the fourth quarter of 2021. Further developments are expected in 2022 to “commercialize new TRUFORMA tests for fT4 and ACTH, for adrenal and thyroid disease panels, and continue to work with our partner on the development of cobalamin, folate and cPL tests, for the screening of non-infectious gastrointestinal diseases.”
If Zomedica succeeds in further commercializing the TRUFORMA® platform, an increase in revenue is to be expected. The main thing now for Zomedica is to give it time to prove that it has changed its business model.
Don’t rush to buy the penny stock until an improvement in profitability is made and sales growth proves that it is not transitory.
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As of the date of publication, Stavros Georgiadis, CFA does not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.