At one point in 2021, shares of Zomedica Pharmaceuticals (ZOM -0.77%) were up more than 1,000% as it looked like the next big stock to own. The company, which focuses on pet health, has been a popular one for retail investors to bet on. But in the past three months, its valuation has fallen sharply (more than 64%), while the S&P 500 has remained up around 6% during the same period.
With Zomedica's value down, is now the time to consider loading up on this pet healthcare stock, and will doing so make you a millionaire in the long run? Let's look at why it may or may not happen, and which scenario is the more likely one.
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Why Zomedica could make you a millionaire
The big hope for investors is that Zomedica's Truforma platform takes off and veterinarians across the country want to use it. The device helps diagnose and assess certain conditions, including hyperthyroidism. Right now, it's simply too early to tell how popular it will be; the company only made its first commercial sale of the device in March.
The next several months could prove pivotal to demonstrate just how much demand there is for Truforma. And if Zomedica delivers a strong quarterly performance later this year, it wouldn't be surprising for the stock to not just reach the highs it hit earlier this year, but surpass them.
One of the biggest wild cards for the stock is just how much hype it can generate, particularly among retail investors and speculators. It's that momentum that could drive the share price up several hundred percent if the company can give investors a reason to be bullish on its business.
And there are signs that the company may be getting more aggressive in its growth strategy. On May 17, it announced the hiring of a vice president for business development to help "lead acquisition and licensing efforts." From expanding product offerings to making investments, there are multiple areas the company looks to be focusing on. If it can diversify its operations and be less dependent on Truforma, that will go a long way in making this a more attractive stock to own.
Why it might not make you rich
The biggest reason Zomedica might not be a millionaire-maker stock is that the business has a long way to go in showing that it can generate strong sales numbers. And that's ultimately going to be tied to whether Truforma is successful or not.
On May 12, Zomedica released its first-quarter results for the period ending March 31, and sales totaled just over $14,000. The company also incurred a loss of $4 million, which was 65% higher than the $2.5 million loss it reported a year ago. A key reason for that was that Zomedica's overhead has become more bloated -- selling, general, and administrative expenses of $3.5 million were double the prior-year amount. And with minimal revenue to offset the increase, that sent the company's financials deeper into the red.
Even if its revenue increases and the bottom line improves, that may still not be enough to get investors buying up the stock again. Over the past few months, growth stocks have come under pressure, with investors rethinking the excessive multiples they have been paying for them. The S&P 500 is now at a price-to-earnings (P/E) multiple of around 40, the highest it has been since the financial crisis of more than a decade ago. Sales multiples, meanwhile, are even higher:
S&P 500 P/E Ratio data by YCharts. TTM = trailing 12 months.
A stock like Zomedica that is not just unprofitable, but generating minimal sales, could be among the hardest hit in a market correction.
Are you likely to make $1 million from investing in Zomedica?
It is possible that Zomedica could make you a millionaire -- it just isn't a scenario that I think is likely. If you were to invest $50,000 into the stock today and it were to get back to its 52-week high of $2.91, you would make a profit of nearly $140,000.For the investment to get to over $1 million, the stock would need to climb to more than $15. Over the long term, it's possible that could happen if everything goes just right for the business. But based on the information available today, there is too much uncertainty to say that's very likely.
Zomedica is a stock that is only suitable for high-risk investors given its uncertain future, and it's an investment I'll personally be staying far away from.
