If I had a pet, I could love Zomedica (NYSEAMERICAN:ZOM) and its services — but its stock is another story. In March, I pointed out that ZOM stock is “overvalued and a risky bet” because of the low acceptance rate of its Truforma platform. So far, my opinion hasn’t changed.

In the same article, I focused on the “show me the money” idea. At the time, the veterinary diagnostics and pharmaceutical company had reported zero sales with a market capitalization of $1.54 billion. I believed Truforma would be ZOM stock’s best chance at success, since it’s the company’s best revenue source. But I had my doubts about the company’s high expectations.

When that article was published in March, the closing price of ZOM stock was $1.58. On Oct. 25, it closed at 52 cents.

In June, I wrote that ZOM stock had yet to grow into its valuation and that there was no material news to move the stock. I wanted the business model to deliver results, and was not happy about the stock dilution or first-quarter results. I was also worried about the lack of commercial success of Truforma.

Since then, my feelings about ZOM stock haven’t changed. Today, I’m still bearish on Zomedica for three reasons.


Zomedica’s Business Model Is Weak

In August, Zomedica announced second-quarter 2021 financial results.

Revenue from Truforma came in at $15,693 for the quarter and $29,817 for the six months ended June 30. The company reported that it “had only limited sales activity” for the product since its release in March.

The company attributes the disappointing sales to its development partner’s delays related to assays. At the time, management expected the issues to persist until the assays were commercially available by the end of 2021.

In simpler terms, this means the public commercialization of Truforma was not a big hit. On the contrary, revenue was very small, and 2021 will end with weak sales. That’s not a great start for a company focused on becoming a leader in the companion animal diagnostics market.

But the company’s management isn’t relying solely on Truforma to generate revenue. Zomedica recently announced that it acquired PulseVet, a leader in regenerative veterinary medicine.

I think this acquisition makes sense, as the first revenue numbers from Truforma’s commercialization are tragic. I will be checking to see if any further revenue growth occurs in the next quarters.

When a company with a market cap of about half a billion has revenue of $29,817 for the first six months of 2021, it’s a clear indicator that the business plan is not effective and requires drastic changes. PulseVet needs to offer substantial revenue growth to make up for Truforma’s lack thereof.

ZOM Stock Faces Stiff Competition

The companion animal diagnostics market has significant potential for growth between now and 2025. It’s expected to reach a value of $3 billion by 2025 compared to $1.8 billion in 2020. That’s a compound annual growth rate (CAGR) of 9.8%.

The growth can largely be attributed to an increase in the number of pets people have, which in turn creates more demand for pet insurance and veterinary services. According to the study, “The growing demand for rapid tests and portable instruments for point-of-care services is expected to offer potential growth opportunities for market players in the coming years.”

Zomedica is not the only player in this market, though. That means it will meet stiff competition. The company will likely need to use its cash to generating revenue and profits for its shareholders. Assuming that Zomedica lowers product prices to gain as much market share as possible, it will struggle to become profitable.

The company has to find another way to gain market share besides reduced costs. Why? Because it expects its costs will increase in the forthcoming quarters. This was stated in the Q2 earnings release.

This brings me to the third key factor that concerns me about ZOM stock: Is it a value stock, a growth stock or neither?

Value Versus Growth in ZOM Stock

The answer to this very important question is that Zomedica is not a value stock. It does not have any key financial ratios or other fundamental features that qualify it as a cheap stock — even at 50 cents per share. With minuscule revenue and negative free cash flow plus its previous stock dilution, it is obvious there is no value generation here yet.

Is there growth, at least? Unfortunately, the answer is no. The Q2 financial results showed widening net losses. For the six months ended in June 2021, it saw a net loss of $8.7 million compared to a net loss of $7.8 million for the same period last year.

Yes, some may argue that it is still too early to show any growth, as only a few months have passed since Zomedica implemented an actual model to promote its Truforma platform.

However, Zomedica now has a strong balance sheet with plenty of cash and no debt. I want to evaluate the use of cash to bring revenue in the forthcoming quarters.

With no value created and no growth present, ZOM stock is now facing a hard business lesson. Its expectations diverge too much from realistic numbers. This is not an ideal scenario.

With no key catalysts present, I repeat my previous investment thesis: Zomedica’s risks continue to be too big to ignore. The prudent decision is to wait for revenue growth to appear (and hopefully last.) If not, dim prospects could weigh further on this penny stock.

This article originally ran on investorplace.com.