So what?

A CE marked product indicates that the manufacturer has met all regulatory and safety requirements to distribute its products throughout Europe. For a healthcare company like Omega Diagnostics, receiving regulatory approval for its products is a must.

VISITECT has already been CE marked for professional use. However, this latest application is to allow individuals to self-test. The approval of home usage significantly expands the firm’s reach and addressable market size. Consequently, if it’s granted, the Omega Diagnostics revenue stream is set to grow rapidly.

How does this impact the ODX share price?

Following this announcement, the ODX share price only increased slightly by around 1%. Why? Because the submission of an application does not guarantee approval. The application reviewing process typically takes four to six weeks.

Should regulators not be satisfied with VISITECT, Omega Diagnostics will have to spend more time developing and improving its product to meet regulatory requirements. This delay will likely have a negative impact on the stock and potentially create an opportunity for competitors. However, if the Covid-19 testing kit is approved for home use, the ODX share price may begin to rise considerably.

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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.

The post Why has the ODX share price climbed 25% in 3 days? appeared first on The Motley Fool UK.

Since the middle of July 2020, shares in the company have returned 19%. However, between the end of November and the beginning of March, the stock returned more than 100%. Between March and today, it has declined more than 50%. 

Nevertheless, despite this volatility, longer-term investors have been well rewarded. Investors who were savvy enough to buy at the end of March 2020 are currently sitting on gains of more than 500%, even with the recent volatility. 

And considering the recent volatility, I am beginning to wonder where the Omega Diagnostics share price will go next? 

Falling revenues

It is impossible to predict stock price movements in the short term. Still, in theory, equity prices should track the performance of their underlying businesses in the long run. 

When it comes to the Omega Diagnostics share price, it is challenging for me to say whether or not the company will continue to grow over the next few years. 

According to the group’s full-year results for the financial year to the end of March 2021, revenues decreased 11% to £8.7m. Due to lower sales, the company reported a statutory loss for the year of £2.1m. 

During the year, the testing group restructured into two primary divisions. Global Health covers HIV and Covid-19, and Health and Nutrition covers food sensitivities. 

Sales in the latter division fell last year as a result of the pandemic. Sales of food sensitivity products declined from £9.2m to £6.8m. 

Meanwhile, Global Health division sales increased to £1.9m for the year, up from £0.7m in the prior year. Revenues generated from Coivd-19 antibody tests accounted for all of the increase. Unfortunately, revenue from sales of these tests was lower than expected as “antibody testing was not adopted as widely as initially expected“.

To that end, the company is pursuing the development and sale of other rapid Covid tests. 

Omega Diagnostics share price challenges 

I think these results present a mixed picture of the group. The pandemic has hurt revenue overall, and sales of Covid tests have not been enough to cover the losses. 

As the pandemic continues to rumble on, it is not clear at this stage if that will change. The company itself has noted sales of testing kits are “very much dependent on the UK Government’s decisions as to test selection and timing“.

As such, I think the Omega Diagnostics share price could continue to drift lower. The market hates uncertainty, and right now, the company’s future is incredibly uncertain. It also remains at the mercy of the government. 

This makes it challenging for me to say whether or not the business will see improved profitability in the months ahead. And if I am struggling to analyse the company’s prospects, other investors may be as well.

Therefore, considering this uncertainty, I will not be buying the stock for my portfolio. 

The post Where will the Omega Diagnostics share price go in July and beyond? appeared first on The Motley Fool UK.

But by comparison, its recent performance has been quite disappointing. Since around March this year, the ODX share price has been on a downward trajectory, falling from around 100p to nearly 60p. However, towards the end of last week, the stock suddenly exploded by over 20%, rising to around 73p today. As a result, the 12-month performance now sits at around a 25% return. But what caused this growth?

ODX Share price: more growth on the horizon?

Omega Diagnostics is a small biotech firm. It primarily focuses on developing diagnostic products to detect food intolerances, allergies, and, more recently, viral infections like Covid-19. Its rapid progress in creating lateral flow antigen tests for the virus opened up several growth opportunities. In fact, this appears to be the primary driver behind the explosive ODX share price last year. But why is the stock price now surging again?

Recently, the management team made a series of promising announcements. 

The first relates to its government manufacturing contract. As a reminder, this agreement is for the production of rapid Covid-19 tests within the UK. Omega says it’s standing by, ready to start manufacturing tests just as soon as the Department of Health and Social Care (DHSC) gives the green light. Unfortunately, this process is taking longer than expected. However, it is worth noting that Omega Diagnostics has already received £2.5m (before VAT) in pre-production payments from the UK Government, and stands to benefit a great deal more once the ball gets rolling.

Secondly, the company has begun pursuing a CE mark for its antigen tests to enable it to start selling in Europe. Omega has actually already received a CE mark for professional use. But it wants to expand this to home use as well. As it stands, the management team expects approval by the end of July.

Combining these announcements, it seems that Omega Diagnostics is about to see a boom in both production and sales of its rapid Covid-19 tests. Needless to say, this offers some substantial growth for the business. And so, seeing the ODX share price take off is not that surprising to me.

There remain several risks

The potential growth that lies ahead is substantial in my eyes. However, whether this can be sustained over the long term remains to be seen. As it stands, Omega expects to generate a significant portion of its near-term future revenue from the sale of its Covid-19 tests. But as the vaccine rollout continues to progress worldwide, the demand for these products will likely decline, as may the ODX share price.

The company does have a diverse portfolio of alternative diagnostic products already on the market. But the income generated by these is not on the same scale as its most recent viral tests.

But the surge in initial income from the government manufacturing contract has flooded the balance sheet with plenty of cash. And this provides the management team with a notable amount of liquidity to pursue the development of new products to replace the Covid-19 sales in the future. But until such products are announced, Omega Diagnostics remains on my watch list.

The post Why did Omega Diagnostics (ODX) share price surge last week? appeared first on The Motley Fool UK.

The volatile ODX share price

I’ve previously explored Omega Diagnostics. But as a quick reminder, the company offers products to detect food intolerances, allergies, and viral infections. At the start of the pandemic, the management team decided to utilise the firm’s technology to quickly develop antibody tests for Covid-19.

In retrospect, this pivot proved to be a wise decision. Why? Because it subsequently led to a signed contract with the UK Department of Health and Social Care that could be worth up to £374m.

Under the agreement, Omega Diagnostics will be using its manufacturing capacity to produce up to two million lateral flow tests per week by the end of this month. And based on its most recent update, it’s on track to achieve this goal.

Given that the firm’s pre-pandemic revenue was around £9.8m, this contract is undoubtedly a major opportunity. So I’m not surprised by the explosive growth of the ODX share price last year. But there seems to be some growing uncertainty among investors about the company’s future potential, those worries causing the recent decline.

Looking to the future

As promising as the most recent update is, the company still has a vast array of challenges that lie ahead. While the Covid-19 contract may be game-changing, there is no guarantee that Omega Diagnostics will receive the full amount. After all, with the number of vaccinations increasing relatively quickly, the demand for these tests is falling.

Even if Omega Diagnostics can extract the maximum value from this contract, the source of revenue is ultimately unsustainable. So the question is, how will it generate future sales? The firm does have an existing portfolio of other products that have been generating income for many years. But not on the same scale.

The surge in cash flow from this contract will likely provide the business with additional capital to further expand its portfolio of offerings. However, the medical industry is one of the most regulated in the world. And therefore, bringing new products to market may take a long time. Suppose it cannot maintain the level of sales that investors are now expecting. In that case, I think it’s likely that the ODX share price will continue its downward trajectory, over the short term anyway.

The bottom line

Omega Diagnostics looks like a healthy and robust business in my eyes. But even after the recent tumble in the ODX share price, the valuation still seems propped up by investor expectations that may not come to pass. And so, for now, I’m keeping it on my watch list.

The post The Omega Diagnostics (ODX) share price is falling. Should I buy now? appeared first on The Motley Fool UK.

At the beginning of February, the company announced that it had inked an agreement with the Department of Health and Social Care to provide manufacturing capacity for Covid-19 lateral flow antigen tests. Today it emerged that this contract could be worth as much as £374m to the organisation. 

However, this number is just a rough guide at this stage. As Omega warned in its press release, the figure “represents a maximum of the potential value of the contract“.

It also warned that the figure should not be used as an “estimate or forecast of the actual likely value of purchase orders to be received by the company“.

What’s more, at this time, the business has not received confirmation that its Covid-19 lateral flow antigen test “has passed the necessary performance evaluation“. Therefore, “there are no Covid-19 lateral flow antigen tests that can be manufactured by Omega, on behalf of the Government, at this time“.

While this order shows Omega’s potential, it has not guaranteed the organisation’s future. 

Omega Diagnostics shares: challenges ahead 

All of the above explains why Omega Diagnostics shares have hardly reacted to today’s news. This contract could be a massive deal for the firm. Unfortunately, as of yet, it does not have anything to sell.

Further, the contract only presents an opportunity to earn up to £374m. It does not guarantee it. As the UK’s vaccination programme starts to impact infection rates, I think the longer it takes for Omega’s Covid-19 lateral flow antigen test to receive approval, the less likely it is the government will need the entire order. 

I believe that’s the most considerable risk facing the company right now. There’s a lot of expectation baked into the stock price after its recent performance. If Omega can’t sell its tests, I think the stock will quickly deflate. 

On the other hand, if the test is approved and orders are placed up to the total value of the contract, Omega Diagnostics shares could be cheap at current levels.

Is the stock cheap? 

The stock is currently trading with a market capitalisation of £183m. The healthcare industry is trading at an average price-to-sales (P/S) of around four today.

If Omega were to hit its entire contract quota in one year, that implies the stock could command a market value of just under £1.5bn. That’s the bull case here. However, everything would have to go right for that to happen, which, in my opinion, is unlikely. 

I think the group’s chances of making over £300m of sales in one year are slim. With that being the case, I would not buy the stock today. After the recent blowout performance of Omega Diagnostics shares, I think the market is expecting far too much from the company. 

The post Omega Diagnostics shares: have I missed the boat to invest? appeared first on The Motley Fool UK.

What caused this explosive growth? And should I be adding the stock to my portfolio? Let’s take a look.

What does Omega Diagnostics do?

The company operates within the healthcare industry. It provides a wide range of in-vitro diagnostic products used throughout hospitals, clinics, and laboratories. These products are manufactured by the company’s three main divisions.

The first and largest is Food Intolerance. This segment generates around 93% of the firm’s total revenue. And as the name suggests, it focused on developing tests that identify individuals’ food intolerances as well as any health problems related to the gut.

The second division specialises in allergies. It only generates around 4% of revenue but offers an essential service used almost every day in hospitals. The company manufactures allergy assay reagents. Put simply, these reagents try to trigger a mild reaction from the body’s immune system to determine whether someone is allergic to something.

The final and smallest division is Omega’s infectious diseases department. It provides a range of CD4 tests that aid in managing patients with a pre-diagnosed HIV infection. However, recently, the firm has adapted its technology to produce antibody tests for Covid-19.

Why did the Omega Diagnostics share price explode?

From what I can tell, Omega’s initial surging share price stems from its promise of developing five different Covid-19 tests in the early days of the pandemic. This momentum has only continued since the company signed a new contract with the UK government.

Omega Diagnostics will provide approximately two million lateral flow devices per week for rapid Covid-19 testing under the agreement. Needless to say, this is a fantastic opportunity for the business, and its managers have said they expect the deal to make a significant contribution to overall performance in 2021.

Risks to consider

The company is a well-established global provider of diagnostics tests. Yet despite this, it’s still unable to make itself consistently profitable and has become somewhat dependent on external funding. Fortunately, the balance sheet is reasonably debt-free and so debt financing is an option for the future, although this could damage its financial health.

Something else to consider is the healthcare industry in general. Much like pharmaceuticals specifically, it’s one of the most heavily regulated sectors in the world. Therefore, there’s no guarantee that new products will receive regulatory approval or be economically viable even if they do.

Final thoughts on the Omega Diagnostics share price

Omega Diagnostics looks like a sound and healthy business in my eyes, but I think its share price is frankly insane. The firm only generated £9.8m of revenue in 2020. And given that it hasn’t stated the value of its new contract with the UK government, it’s tough to determine the business’s true underlying value this year.

I think the Omega Diagnostics share price is too high based on the currently available information. And so, I won’t be adding it to my portfolio today.

The post The Omega Diagnostics share price is up nearly 1,200% in a year! Should I buy now? appeared first on The Motley Fool UK.

The company’s longer-term performance is a bit more sedate. The ODX share price bumbled along at a price of between 15p to 20p between the beginning of 2016 and March of 2020.

However, when the pandemic struck, its fortunes began to change. It has offered its experience in the testing and diagnostic space to help the government’s testing programme. ODX had planned to produce as many as five different types of Covid-19 tests. 

And today, the firm has announced that it has agreed a contract with the UK Department of Health and Social Care (DHSC) to provide manufacturing capacity for Covid-19 lateral flow antigen tests.

A new deal 

The company hasn’t said how much of an impact this agreement will have on its future potential. Nevertheless, management has disclosed that the deal could provide a “significant contribution” to future performance.

There’s no doubt this is a massive deal for the firm. ODX anticipates it will be able to produce approximately two million tests per week by the end of April. Production can begin as soon as the DHSC has a test that has passed performance and regulatory hurdles. 

There’s no doubt in my mind this is a tremendous opportunity for the company. Still, I think it’s challenging to place a value on the ODX share price right now. According to its latest figures, full-year group revenue for its current financial year is expected to be £9.3m.

Management believes the organisation will report earnings before interest tax depreciation and amortisation (EBITDA) loss of around £2.1m-£2.3m on this figure. 

How much is the ODX share price worth? 

Next year, the company expects to deliver “substantial revenue growth compared to this financial year.” Management also sees tremendous opportunities in the group’s legacy food intolerance testing business alongside its Covid-19 testing division.

As the financial terms of the latest deal with the DHSC haven’t been disclosed, it’s difficult at this stage to tell how much of an impact this will have on ODX’s revenue growth next year.

Based on what we do know, City analysts have pencilled in revenues of £12.6m for its 2021 financial year, and £14.7m for 2022. This could translate into earnings per share of around 0.9p. I should caution that these are just forecasts at this stage.

There’s no guarantee the company will meet these targets. Equally, it could surpass these growth projections. 

Still, looking at its current market capitalisation of £170m, I think the ODX share price might have gotten ahead of itself in recent weeks. The company’s future is highly uncertain, and we don’t know how much of an impact the latest deal will have on its bottom line at this point. 

Therefore, while the City expects big things from the business in the next two years, ODX’s current valuation makes me uneasy. I’m not a buyer of the shares at current levels as a result. 

The post The ODX share price jumps! Should I buy the stock? appeared first on The Motley Fool UK.

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. 

The post Omega Diagnostics: Is it a buy after its almost 35% rise today? appeared first on The Motley Fool UK.

Omega Diagnostics share price slips

Earlier this week, the UK government ordered 1m antibody tests from the UK rapid test consortium. Scottish medical diagnostics company Omega is a member of the consortium and will manufacture around 175,000 of this order. Besides the initial 175k tests, the company will manufacture at least 25% of demand for any further orders placed. News of the order lifted the Omega share price on Wednesday. However, it seems a lot of positive sentiment has already been priced into the stock as its share price slipped back today.

Omega’s price-to-earnings ratio (P/E) has skyrocketed in recent months and is now a hefty 126. This is even higher than FTSE 100 pharma favourite AstraZeneca. This shows that investors have a lot of confidence in the firm. But it’s highly speculative, and it could be some time before substantial profits arise. Earnings per share are less than 1p, and Omega doesn’t offer a dividend.

Profit predictions difficult

The purpose of the home-test is to check individuals for Covid-19 antibodies. This will help support nationwide studies into how widespread the disease is. By early next month, Omega intends to produce up to 200k tests a week.

However, ongoing demand for the Covid-19 tests is yet unclear, which makes profit predictions difficult. In theory, Omega could produce around 3.8m lateral flow tests at full capacity during FY 2021. This would generate revenues of up to £5.7m (according to Finncap research).

Besides five different Covid-19 tests, the company specialises in allergies, food intolerance, and HIV testing equipment. Each offers scope for growth and income, but I’m not convinced it’s at a level that warrants the current share price. Considering the company has a market capitalisation of £181m, I think it’s probably overvalued.

Despite this being a hot share and one you may be tempted to buy in a stock market crash, I think the Omega share price would have to fall a long way before it would be worth buying.

A hotter UK share I’d buy in a market crash

A second UK share you might be tempted to buy in a stock market crash is Frontier Developments. The computer games developer and publisher has enjoyed an exceptional year and looks to have a profitable future too. Last month it confirmed revenue and profit slightly ahead of expectations for the year ending 31 May, leading analysts to raise their share price target.

Frontier Developments manufactures popular games including Planet Zoo (launched 2019), Jurassic World Evolution, Elite Dangerous and Planet Coaster. 2021 revenues are expected to be between £90m and £95m. Frontier has a P/E of 60 and earnings per share are 41p. It doesn’t offer a dividend.

Frontier looks to me like it knows what its consumers are looking for and how to give it to them. With the gaming sector thriving, I’d consider buying Frontier Development shares during a stock market crash.

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