Co-Diagnostics (CODX 0.71%) is up a ridiculous 1,240% this year, but the stock has dropped more than 45% in the past three months. It's probably right to wonder if its run is over, and whether it's still a good time to buy the molecular-diagnostics company, which marketed highly accurate tests for COVID-19 this year.
When we consider the factors leading to Co-Diagnostics 2020 climb, it all seems to boil down to the same question for prospective investors -- although it's done it before, can Co-Diagnostics really go higher in the future? Here are three reasons why I think it will.
1. The company has never been in better financial shape
Since Co-Diagnostics was founded in 2013, it has never turned a profit, and during the past three years, it has lost a little more than $6 million annually. This year, however, Co-Diagnostics is on track to make money for the first time.
Through the first six months of the year, the company reported revenues of $25.5 million, an increase of 393% year over year. It also reported a net profit of $11.5 million, compared to a loss of $2.7 million in the same six months in 2019.
It's hard not to get excited about progress like that. Prior to this year, buying stock in Co-Diagnostics was a roll of the dice, but no longer. The additional cash has allowed it to throw money into research and development (R&D). As of June 30, the company reported it had $18.6 million in cash, $17.7 million more than it started the year with. As of Sept. 14, Co-Diagnostics CEO Dwight Egan said that number was up to $24 million in cash, with no debt.
2. The rate of testing for COVID-19 isn't going down anytime soon
Co-Diagnostics' Logix Smart COVID-19 tests have been enormously profitable. It's reported 70% gross margins on the sales of the kits this year. Through Sept. 14, Egan said the company had orders for 50 million kits.
As more teachers and students return to schools for in-person learning and more workers return to the office, there will be a growing need for COVID-19 testing. This works in Co-Diagnostics' favor. The company says that its test is capable of working in high-throughput situations, where labs can process 50,000 tests a day.
In addition, the company's CoPrimer technology is being used by partner Clinical Reference Lab (CLA). In August, CLA got an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) for a saliva-based COVID-19 test that can be self-administered and then analyzed using Co-Diagnostics' technology.
Co-Diagnostics has also come up with a more useful COVID-19 test, which it calls its "ABC test" because it can spot the difference between A and B flu strains and the coronavirus. Over the past seven years, the estimated number of flu cases in fall and winter in the United States has ranged from 24 million to 45 million, and flu symptoms are, at least at the outset, similar to the coronavirus.
3. The company is thinking past COVID-19
Today, COVID-19 is the problem, but Co-Diagnostics has also developed tests for mycobacteria, tuberculosis, Zika, and a separate test to differentiate between Zika, dengue, and chikungunya viruses. Liquid biopsies for cancer or other diseases are other avenues the company is exploring using its CoPrimers technology. The company's COVID-19 vaccine has helped it develop a network of more than 50 distributors, something it can now utilize with any other testing product it markets.
It's not all positives, though
There are obvious upsides to Co-Diagnostics, but the company could still be a double-edged sword, given how quickly the biotech stock's price rose this year. With a price-to-earnings (P/E) ratio of 63.37, a lot of the company's short-term potential may already be baked into its shares.
However, it's clear that Co-Diagnostics is growing revenues quickly and understands the importance of cash generation. Barring a big setback, it has the potential to grow earnings rapidly over the next year and beyond. Because of those factors, I see the stock as a good long-term investment.