In this crazy market environment where bearishness equates to a reason to buy a particular equity unit, it should be no surprise in this context that Zomedica (NYSEAMERICAN:ZOM) previously dominated the charts. Given that ZOM stock once closed near the $3 level, shares at less than 80 cents sounds like a reasonable opportunity. But if you look at the math, ZOM may be the riskiest idea you can have.
Before my inbox gets filled with hate mail, let me back up. I fully appreciate why someone would be bullish on ZOM stock. For one thing, the performance from November 2020 till February of this year has been nothing short of phenomenal. Between Nov. 2 to Feb. 8, Zomedica shares jumped nearly 39X.
Therefore, if you had invested $1,000 in ZOM stock at the beginning of the period, you would have nearly $38,600 at the end of it. That’s quite a return for a little over months of “work.” Naturally, with shares again at levels where literal penny stocks reside, many who missed the boat (and some who didn’t) anticipate that lightning will strike twice.
But there’s also a sentimental reason that drives ZOM stock. As you know, the underlying company specializes in veterinary care; specifically, advanced diagnostic tools that allow veterinarians to receive accurate results at the point-of-care.
This is a trigger point for millions of people, particularly American millennials. According to various sources, millennials are the most enthusiastic pet owners. Logically, it makes sense that ZOM stock received love from the social media crowd, which caters to the young.
But millennials aren’t the only catalyst for Zomedica and the pet care industry. According to the American Pet Products Association (APPA), we collectively spent $103.6 billion on our four-legged friends. But even this is not enough to support Zomedica’s bullish argument.
ZOM Stock Has a Probability Problem
Again, saying the last sentence is likely to draw anger. After all, the APPA, also anticipates that the pet care spending will only increase, to the tune of $109.6 billion by the end of 2021. That’s nearly a 6% year-over-year growth rate, which is frankly remarkable.
As well, our own Will Ashworth pointed to Zomedia as the one penny stock to buy in 2021 if you buy any at all. In one of his earlier stories, Ashworth noted how personally important the advanced of pet-related health innovations were to pet owners. I get it. There’s a real emotional, perhaps even spiritual connection that we have with animals.
Unfortunately, the market doesn’t care about that, which is why ZOM stock is problematic.
If you look at the shares available for trading in the bid-ask spread for Zomedica, you’ll see a huge discrepancy. Indeed, we’re talking about an over 6X difference between the ask size and bid size.
With ZOM stock, you have an environment that’s opposite of the current housing market: many more sellers exist than do buyers. That’s the first clue that Zomedica is due for a continued correction, though this isn’t guaranteed.
The counterargument, especially in this broader market dynamic, is that ZOM could be a potential short-squeeze candidate. That is, too much bearishness could backfire badly on the pessimists.
But here too, we have a problem. As of April 30, 2021, the short percentage of float is just under 7%. It’s not nothing, to be clear. But it’s also nowhere near the levels seen in so-called meme stocks. Even the memes that already exhausted their short-squeeze narrative still presently sport double-digit short percentage of float.
The Clock Is Ticking
What the above suggests is that people simply don’t want to be involved with ZOM stock. They don’t necessarily hate Zomedica or believe that it will come crashing down. They’re just not interested.
For sure, I think it’s very possible that short traders could come in later (perhaps soon) and short sell ZOM. But for now, the short sellers aren’t here. Thus, ZOM could fall further before we can even have a discussion about short squeezes.
In my opinion, the probabilities for ZOM don’t match up well. Investors don’t like it. Bearish traders haven’t yet started attacking it. This will probably fall first before it becomes attractive as a speculative gamble.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.