It’s a big day for Covid-19 test kits’ provider, Omega Diagnostics (LSE: ODX). The AIM-listed share’s price is up almost 35% as I write, after the Financial Times reported its selection as one of the British manufacturers of rapid Covid-19 tests by the UK government.
A coronavirus star stock
This is hardly the first such occurrence for it in the last one year, however. The medical diagnostics provider saw a sharp upturn in its share price fortunes in 2020 as the pandemic struck. Even though the stock price has been more subdued in the past few months compared to the highs it saw in October last year, it’s still significantly elevated compared to its pre-2020 levels. For instance, at its present levels of 93p, ODX’s share price is almost 7 times the levels it was at two years ago.
It’s easy to see why investors are tempted by it. The company hasn’t confirmed its selection yet, but if the news were true, that would ensure a bump-up in its revenue pipeline. And good financials are good news for share prices, more often than not.
But that’s all in the future.
Omega Diagnostics’ performance is uncertain
When I buy stocks, I like to look at the company’s past performance as well. That is indicative of whether or not the share price is likely to be stable or growing or not. In the case of Omega Diagnostics, I don’t get any such sense of security looking at its financials.
Inconsistency in both its revenues and earnings over the past few years makes me uncomfortable. Even if we look at the numbers for the six months up to 30 September 2020, its revenue declined and it also showed a loss.
Better days in store for ODX
This could be the turning point for ODX and investors who buy it now may end up with superb gains over time.
There are indeed positive developments underway for ODX. The most obvious of them of course is the production of Covid-19 testing kits. But even otherwise, it noted in its previous financial update that sales in October and November 2020 were expected to improve from the year before.
It also reported headway in its food intolerance business. Notably, it has received regulatory approval from China and expects significant growth opportunities in the country. It’s optimistic about the potential demand for its product in the US market as well.
The takeaway
But so far, there’s little to hold on to when making share price predictions. In fact, it’s possible that once the pandemic is behind us, the hype behind coronavirus-related stocks also subsides. I’m inclined to keep ODX on my watch-list.
Even though prices across stocks have run up a lot in the market rally, I think there are some pretty strong stocks that are still trading at relatively low prices. This makes ODX less attractive by comparison, the good news notwithstanding.
