Zomedica (NYSEMKT: ZOM) it’s hot right now. Shares of the veterinary health company have jumped close to 800% to date this year after attracting the attention of Reddit group WallStreetBets.
Unlike some stocks favored by the WallStreetsBets community, Zomedica seems to be improving its business outlook. The company plans to launch its TruForma diagnostic care platform in late March. But I think there is a stock of pets that is better for investors than Zomedica.
An established leader in his niche
Trupanion 09.30 NASDAQ: TRUP ranks among the established leaders in its niche market – medical insurance for cats and dogs. At the end of 2020, the company had 863,000 pets enrolled in its insurance plans. That number reflects an increase of 33% over the previous year.
By comparison, Zomedica hopes to succeed as a challenger in its market. Several major players are already competing in the pet diagnostics market, including Idexx Laboratories i Zoetis. Gaining market share from these entrenched leaders is achievable, but it will not be easy.
From a financial perspective, Trupanion is at the top of Zomedica on almost all fronts. The company generated revenue of $ 502 million in 2020, up 31% from last year. On the other hand, Zomedica does not have any products on the market yet and has not recorded a penny of income so far.
Both Trupanion and Zomedica remain unprofitable. However, Trupanion is approaching profitability. The company reported a net loss of $ 5.8 million last year. It also announced adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 11.5 million. Zomedica lost almost as much in the third quarter of 2020 as Trupanion did throughout 2020.
Runway with clear growth
You can describe Zomedica’s growth strategy as provisional. As mentioned earlier, the company plans to launch TruForma at the end of the first quarter. But CEO Robert Cohen wrote to shareholders that this will be a “controlled release phase in which we slowly begin” to sell the system.
Cohen said Zomedica plans to start with “at least three tests in a limited geographic market to test our distribution system.” By the end of this year, the company could expand to additional geographical regions, but only “if market conditions justify such expansion.”
Contrary to these framework plans, Trupanion CEO Darryl Rawlings’ statement in the Q4 update, “We are well placed to capture growing opportunities in our large, underperformed market.” Trupanion projects subscription revenue growth of 25% over last year in the mid-range of its guidelines.
The company estimates that its addressed market is nearly $ 32.8 billion. This estimate assumes reaching a 25% penetration rate in the UK pet insurance market Currently the market penetration rate in the US is only 1% and in Canada around 2%.
There is another factor that should go in favor of Trupanion. Large supplementary insurance Aflac (NYSE: AFL) recently bought almost 10% of Trupanion. The two companies plan to work together to target the U.S. job market and then the Japanese. Trupanion did not include any impact of the partnership with Aflac in its 2021 guidelines. However, expect to see the real fruit of the Aflac relationship starting in 2022.
Don’t get me wrong: I think Zomedica could achieve strong growth in the long run. However, my opinion is that Trupanion is obviously a better bet between these two pet-focused growth stocks.