Jason McCarthy, an analyst at Maxim Group, has raised the investment bank's rating on Co-Diagnostics (CODX 5.23%). Increasing sales of Co-Diagnostics' test for COVID-19 led McCarthy to upgrade the stock to a buy and give it a $30 price target.
A 63% gain ahead?
Despite McCarthy's ambitious new price target and rating upgrade, shares of Co-Diagnostics fell about 2.5% during the first half of Wednesday's trading session. At the stock's recent price of $18.27, Maxim's new target suggests a 63% gain once the rest of the market sees the company's future in the same light as McCarthy.
As Co-Diagnostics revealed in the earnings report it delivered last week, sales of the Logix Smart CODIV-19 test helped lift its total revenue to $1.5 million during the first quarter, but analysts following the company expect enormous gains from there when the company reports on Q2. Co-Diagnostics has boosted production capacity at its main facility in Salt Lake City and at a plant in India as part of a joint venture to meet soaring demand. With distribution across 15 U.S. states, plus dozens of countries around the world eager to contain their own COVID-19 outbreaks, sales of the company's molecular diagnostic could pass $80 million in 2020.
Play it safe
At recent prices, Co-Diagnostics stock is trading at about 6.2 times 2020 sales expectations, which isn't a bad price to pay if you can assume the company will continue raising sales at a moderate pace throughout the COVID-19 pandemic and beyond.
Before jumping in head first, though, it's important to realize that reaching Maxim's price target will require some rapid scaling of operations that this relatively young company might not be ready for. If the market sees doesn't see sales rising fast enough when the company reports again in a few months, this stock's price could quickly come crashing down.