Shareholders in Omega Diagnostics Group (LSE: ODX) have suffered a volatile ride over the past 12 months. The stock is down 8% overall, but that hides a bigger story. As recently as March, the ODX share price was up at 100p. Then by 20 August, it had plunged to 42p.
Omega shares have started spiking upwards once more this week, gaining 28% in less than three market days. So what’s happening? And is this the start of another big climb? If it is, will it be sustainable this time? And, most important of all, should I buy? I can’t promise to answer all those questions, but I’ll offer some thoughts.
For the year ending 31 March, revenue fell 11% to £8.73m. And the firm recorded an adjusted pre-tax loss of £3.15m, compared to an adjusted loss of £0.4m the previous year.
Why the rise?
Omega did at least end the year with cash of £5.8m on the books. The ODX share price actually perked up a bit on the day of the results, but that didn’t last. So is it all down to the market’s love/hate relationship with companies in the Covid-19 testing field.
In its results statement, ODX said its sales were below expectations “mainly due to focus changing towards antigen testing in the UK where routine antibody testing was not recommended as previously anticipated.”
Aha, there might be something there. Just a few days ago, we heard that antibody tests are to become widely available to the UK public for the first time. Two tests, 28 days apart, could usher in the sales boost that Omega had been expecting in the previous year.
ODX share price valuation
That still doesn’t help me work out a fair valuation for Omega Diagnostics shares, mind. But in the long term, the share price will surely reflect the company’s bottom line profits. I’m reminded of Benjamin Graham’s famous statement that, in the short run, the market is like a voting machine, but in the long run it’s like a weighing machine.
Right now we don’t see a profitable track record to weigh up against the stock’s value. So the ODX share price is currently being driven by popularity, sentiment, and hope. That doesn’t make it wrong to buy now, not at all. No, it just makes it trickier to get it right and more of a risk. But for those who take the risk, I do think there’s a decent chance they’ll reap the rewards.
Sales surge?
Experts have been saying since the start of the pandemic that Covid-19 will be with us for longer than most people expect. I reckon it’s going to be even longer. I do think the demand for antibody tests could grow strongly, and the ODX share price could well follow.
Against that though, I don’t know how to guess at what proportion of antibody test sales will go Omega’s way. Or, for that matter, how it might translate into profit. And while Omega is continuing to develop new rapid Covid tests, so are many competitors.
As a relatively mature and low-risk investor, I won’t buy Omega Diagnostics shares now. But a younger me would probably invest a small sum.
