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Up 938% in 2020, Is Co-Diagnostics Still a Buy in 2021?

By Taylor Carmichael - Jan 30, 2021 at 12:00AM

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This diagnostic specialist started off the year as a micro cap, but it roared ahead with its COVID-19 test.

Co-Diagnostics (CODX 10.66%) was a penny stock at the beginning of 2020, with its shares trading hands for $0.90 at the beginning of the year. By December this biotech stock was up to $9.30. What caused this fantastic run-up, and is there any more gas in the tank? Motley Fool contributor Taylor Carmichael and healthcare and cannabis bureau chief Corinne Cardina discuss this intriguing diagnostic company on Motley Fool Live. This segment was recorded on Jan. 15, 2021. 

Corinne Cardina: The number 5 -- and we're going to go from 5, 4, 3, 2, 1, just to keep everyone in anticipation of that number 1 stock -- number 5 was Co-Diagnostics. I will put that in the chat. This is a company focused on molecular diagnostics. It was one of the first to develop a COVID-19 test at the start of the year, selling more than 10 million test kits globally by December. Co-Diagnostics specializes in molecular diagnostics, which is high end, more expensive, and very precise. It can take days to get the results back from the lab. It competes with Fulgent Genetics (FLGT 3.72%) in this space and other larger diagnostic companies offer antigen diagnostics, which are like nasal swabs, and you get those results right away. It's a little bit different. Doesn't work as well, those nasal swabs, when people are asymptomatic. But Co-Diagnostics, looking at 2020, it's up 938 percent. It is still only a 283 million market cap so there could be some room for growth in this next year. I'm going to step off my soapbox and let Taylor tell us a little bit more about this stock starting with, what is one green flag for 2021? Something that bodes well for Co-Diagnostics in 2021.

Taylor Carmichael: Right. Great. Well, Co-Diagnostics is a COVID-19 stock. It jumped up when COVID-19 hit, it jumped up in March, it jumped up early. They had a diagnostic test for COVID-19. It came out of nowhere. This was a micro-cap company, very tiny company, and now its still a small company, 283 million. That shows how small it was. It's basically a 10 bagger in less than a year. It jumped so highly because of COVID-19. It's very much a COVID-19 stock, and we're jumping ahead to the red flag, but that's what's scaring people from the stock too is the fear that once COVID-19 goes away, that the stock will crash or come back down to where it was before, because so much of their revenues are COVID-19 related right now. They have very high-end diagnostics for things like Zika and hepatitis, hepatitis B, hepatitis C, things that really aren't a big issue in the United States or in Europe. COVID-19 was, I don't want to say a blessing, but it really helped this company because it gave them a market for their high-end diagnostics, and they hit the ball running, and they've got incredible numbers. I mean, they have profit margins like Visa and their growth rate is like 50,000 percent or something. Their growth rate is from next to nothing to fairly substantial. Not substantially. I can't remember what their revenues are, but the 52,000 percent revenue growth. But that's basically because it was such a small company before. I guess the green flag, I would say is if you think COVID-19 is a new normal, and you think that we're going to have to need diagnostic testing over the next several years, then this would be a great stock to buy because they have a diagnostic that distinguishes COVID-19 from the flu, from the cold, which a lot of the symptoms are synonymous. If you have a fever, maybe you have the flu or maybe you have COVID-19. You have a hacking cough, maybe you have the common cold, or maybe you have COVID-19. They have a diagnostic that will distinguish that and if you have the belief that this is a new normal, and we're going to be fighting COVID-19 for a long time, this would be a great stock to buy, and Fulgent Genetics would be a great stock to buy too. They're very similar companies I think. That's a Fool recommendation actually, Fulgent Genetics. This is a smaller version, not much smaller, but they are very similar companies, and they have the same phenomenon. They both have a high short interest. They have 23 percent short interest, 26 percent short interest, which to my way of thinking that's the market saying, we're going to solve COVID-19, and the vaccines we're going to vaccinate people, and this is going to go well. It depends on how you come down on that. If you believe that we're going to vaccinate, if you're the optimist, you believe we're going to vaccinate, and COVID-19 is going to go away, I would avoid this stock. Because so much of their revenues are COVID-19 related, but if you think it's a new normal -- sorry about my dog -- if you think it's a new normal, then this is a great stock to buy. It's very cheap, which is the high short interest. Their PE is low, their profit margins are like Visa and their growth is exceptional, and that's because we're in the middle of a pandemic and people want to know, "Do I have COVID-19?"

Corinne Cardina: Excellent.

Taylor Carmichael: If it's going to be this way for the next several years, this is a good stock for you.

Corinne Cardina: Yeah. We've heard a lot about new mutations causing new variants to circulate in all different parts of the world. Could some of these new mutations with the virus stave the demand falling off for diagnostics? What do you think about that?

Taylor Carmichael: Yeah. I do think that that is a vaccine question, because that's what the mutations are talking about. If we vaccinate, and the vaccination in Moderna and Pfizer is 95 percent, very high efficacy rates. If we vaccinate and we no longer have to worry COVID-19, then that is great for our society but would not be good for the stock. But if COVID-19 mutates, then we're going to have to revaccinate every year like we do with the flu. We're going to revaccinate, and we're going to need diagnostics. It depends on how much mutation there is. If it mutates and mutates and mutates, then in essence, this COVID-19 is going to stay with us. Then we're going to very much need diagnostics and we're going to have to revaccinate. But if it's a one and done vaccination, and that's something we don't know yet, so that's the big question really, is, and if I was investor in Co-Diagnostics, I would pay attention to the vaccines, actually. Is it one and done? Are we seeing COVID-19 disappear, because that's key for this stock right now.

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Stocks Mentioned

Co-Diagnostics, Inc. Stock Quote
Co-Diagnostics, Inc.
$5.50 (10.66%) $0.53
Visa Inc. Stock Quote
Visa Inc.
$212.88 (2.08%) $4.33
Pfizer Inc. Stock Quote
Pfizer Inc.
$53.91 (-0.15%) $0.08
Fulgent Genetics, Inc. Stock Quote
Fulgent Genetics, Inc.
$57.98 (3.72%) $2.08
Moderna, Inc. Stock Quote
Moderna, Inc.
$147.66 (8.73%) $11.86

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