Zomedica Pharmaceuticals (NYSEMKT:ZOM) stock is the latest pump-and-dump looking to take investors for a ride. Don’t let its 342% rally since Jan. 4 cloud your judgment. Those who got in early and bought back when ZOM stock was changing hands at 23 cents per share are sitting pretty. But those who got in at $1 per share and above?
They could wind up “holding the bag,” so to speak. That is to say, buying in at inflated prices only to see shares crater as it becomes apparent Zomedica is not the next big name in pet healthcare.
Yes, there may be potential with its flagship pet diagnostic platform TRUFORMA. But, as it stands now, this is a company with zero revenue and around $90 million in cash — but a $833.7 million market capitalization.
Put simply, shares more than reflect the prospects of TRUFORMA, and then some. Once the hype subsides, shares will again trade on their fundamentals. Once this happens, expect them to fall fast toward prior price levels.
So, what’s the play here, after its blockbuster run in the past three weeks? One word: avoid!
Why ZOM Stock Seems Like an Obvious Pump-and-Dump
At first glance, one may think the rapid rise in Zomedica shares is due to game-changing developments with TRUFORMA. But news of this product’s commercial release was announced back in November.
So, if not the pending commercial debut of TRUFORMA, what was it that got investors excited for ZOM stock? Chances are, it’s due to the recent large-scale hyping up of the stock online. A recent allegedly paid-for video endorsement from Carol Baskin (of Tiger King fame) helps bolster this theory.
Suspicions rise further when you consider that many investors exercised warrants they held to buy Zomedica shares at lower prices. Granted, this helped to increase the company’s cash position by more than $40 million. However, given that these outstanding warrants had exercise prices of 20 cents per share or below, this capital raise came at the price of heavy dilution.
Put it all together, and the recent moves in this penny stock are fishy to say the least. But, no matter the cause, there’s no reason to chase this rally. While it claims to be on the cusp of something big, chances are it’ll underwhelm in the coming months.
You Probably Aren’t Missing Out
Many may see Zomedica’s recent move higher and believe, even after its triple-digit rally, that you can still “get in on the ground floor” at the stock’s current price levels. While the company could surprise, and TRUFORMA could take off as the hottest thing in veterinary medicine, don’t hold your breath.
Nothing’s guaranteed when it comes to early-stage healthcare companies. Success investing in this sector involves more than just rushing out and buying on the headlines alone. And that’s the problem with ZOM stock.
Instead of assessing the long-term potential of TRUFORMA, speculators have mostly bought this on hype alone. As a result, the company’s valuation more than reflects the potential value of this flagship product. And then some, when you factor in the heavy dilution from the recent exercising of options.
Admittedly, there’s more to Zomedica’s pipeline than just TRUFORMA. The company has other candidates in its pipeline. These include ZM-020 (a pathogen detection platform for dogs and cats) and ZM-017 (a platform to conduct cancer biopsies on dogs). But, until further developments come out, it’s tough to handicap whether the company will find success with either one.
In short, buying this stock is more of a gamble than a sound investment. Sure, if the hype continues and the company releases more positive news, shares could move upward from today’s prices.
More likely than not, however, Zomedica is going to fall short. Once investors realize this stock is mostly sizzle (with very little steak), shares will crater back to prior price levels.
Don’t Get Caught Holding the Bag
I understand why some may be interested in diving into this “hot stock.” Although right now it’s operating with zero revenue, that could all change once TRUFORMA debuts. While it’s possible this soon-to-be commercialized diagnostic platform will revolutionize veterinary medicine, is it probable?
The jury’s still out. But, given the recent pumping of this stock online and the subsequent shareholder dilution, the risk of heavy losses vastly outweigh the potential for shares to rally another 100% (or more) from here.
Bottom line: Don’t get caught holding the bag. Avoid ZOM stock at all costs.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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