Why this pet population is better than Zomedica | The motley fool

Zomedica (NYSEMKT: ZOM) is sizzling hot right now. The shares in the veterinary company have soared to almost 800% so far this year capture the attention of the Reddit group WallStreetBets.

Unlike some of the stocks that benefit the WallStreetsBets community, Zomedica appears to have improved business prospects. The company plans to launch its TruForma point-of-care diagnostics platform at the end of March. But I think there is a pet stock that is a better bet for investors than Zomedica.

Dog sitting on an examination table with woman and young boy wearing masks on one side and a veterinarian wearing masks on the other side

Image source: Getty Images.

An established leader in his niche

Trupanion (NASDAQ: TRUP) ranked as an established leader in its niche market – health insurance for cats and dogs. By the end of 2020, the company had almost 863,000 pets enrolled in its insurance plans. The figure reflects an increase of 33% from 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 and Zoetis. Gaining market share from these entrenched leaders can be achieved but it will not be easy.

From an economic perspective, Trupanion Zomedica tops almost all fronts. The company generated revenue in 2020 of $ 502 million, an increase of 31% compared to the previous year. Zomedica, on the other hand, has no products on the market yet and has so far not registered a penny in revenue.

Both Trupanion and Zomedica remain unprofitable. Trupanion, however, is approaching a level playing field. The company reported a net loss of $ 5.8 million last year. It also reported 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 lost in the entire year 2020.

A clear growth path

You can describe Zomedica’s growth strategy as preliminary. As previously mentioned, 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 where we are slowly beginning” to sell the system.

Cohen said Zomedica plans to start with “at least three analyzes in a limited geographic market to test our distribution system.” By the end of this year, the company could expand to additional geographic regions but only “if market conditions warrant such expansion.”

Contrast the preliminary plans with Trupanion’s CEO Darryl Rawling’s statement in the company’s Q4 update: “We are well placed to capture the growing opportunities in our large, underpenetrated market.” Trupanion projects a growth for subscription revenues of 25% compared with the same period the year before.

The company estimates that its addressable market is nearly $ 32.8 billion. This estimate assumes that the market penetration rate for pet insurance in the UK is currently 25%. At present, the market penetration rate in the USA is only 1% with the share in Canada being around 2%.

Better investment

There is another factor that should work in Trupanion’s favor. Large supplementary insurance company Aflac (NYSE: AFL) recently bought almost 10% of Trupanion. The two companies plan to work together to first target the US workplace market and then follow the Japanese market. Trupanion did not include any influence from its partnership with Aflac in its 202 guidance. However, expect to see some real fruit from the Aflac relationship beginning in 2022.

Don’t get me wrong: I think Zomedica can potentially provide strong growth in the long run. But my opinion is that Trupanion is clearly the better option between these two pet-focused growth stocks.

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