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Forget Zomedica, Buy These 2 Pet Stocks Instead

Stock MarketsJun 07, 2021 04:30PM ET
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© Reuters. Forget Zomedica, Buy These 2 Pet Stocks Instead

The lower-than-expected sales and market reach of Truforma, along with its declining financials, make pet stock Zomedica (ZOM) a weak investment now. However, the rising demand for pet food, medications, diagnostic devices and solutions suggest a positive outlook for pet care spending in 2021. As such, we think Zoetis (ZTS) and IDEXX (IDXX) are well-positioned to capitalize on the industry tailwinds. Read on for details.Popular veterinary pharmaceutical company Zomedica Corporation (ZOM) has had a remarkable run, gaining 695.6% over the past nine months. This was driven primarily by the positive feedback on its Truforma diagnostic device, which counts T4 and TSH hormone concentration in pets’ bloodstream. However, the company has not been able to generate substantial revenue from Truforma sales in the first quarter of 2021. ZOM plans to supply the product directly going forward, which might lead to depressed sales margins. Furthermore, ZOM's relative overvaluation compared to its peers has been a concern for some time. In terms of trailing-12-month EV/Sales, ZOM’s 43.28kx is significantly higher than the 7.79 x industry average. And the stock is currently trading 68.7% below its 52-week high of $2.91. Its poor quarterly financials and unfavorable analyst sentiment makes it best avoided now.

However, the pet industry has been on a growth trajectory, driven by increased pet adoption during the pandemic and huge spending on pet food medications and other products. The U.S. pet industry reported a record $103.60 billion in sales in 2020. Pet companies are currently focusing on the research and development of viable drugs, vaccines, diagnostic devices and other pet-friendly products to capitalize on the growing demand. The industry’s sales are expected to rise 5.8% year-over-year to hit $109.60 billion in 2021. Furthermore, the global pet care market is expected to grow at a 5.6% CAGR over the next seven years to hit $325.74 billion by 2028.

Given this backdrop, we believe it is wise to invest in relatively better pet stocks Zoetis Inc . (NYSE:ZTS) and IDEXX Laboratories, Inc. (IDXX) that have the potential to outperform ZOM in the near term, given their impressive product launches, higher-than-industry profitability and impressive financials.

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Forget Zomedica, Buy These 2 Pet Stocks Instead

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