It seems odd to say a share is ready for take-off when it has already returned over 850% over the past 6 months.
But this is exactly the stage that Omega Diagnostics (LON: ODX) is at after it surged 14% on Friday to close at 93.5p.
With an imminent pipeline of exciting validations ahead, Omega Diagnostics is now getting ready to take off with the high expectations expected to translate into reality and ultimately cold, hard and big numbers.
ODX compared to its peers; room for growth as expectations translate to reality
Firstly, we take a look at Omega Diagnostics compared to some of its listed peers in the diagnostics space:
|Omega Diagnostics||EKF Diagnostics||Novacyt||Avacta|
|% increase (6 months)||858%||107%||200%||720%|
What’s particularly interesting in the above comparison is the % increase in both Omega Diagnostics and Avacta despite their recent numbers. Financially, Omega posted a loss of £6.83m for the year ended March 2020. For the six months ending June 2020, Avacta posted an operating loss of £7m. What this indicates is a huge nod to the strong potential of the business moving forward.
Contrastingly, EKF has posted a half year net profit of £4.1m and Novacyt has posted a €49.4 million profit for the half year. It is worth highlighting that EKF Diagnostics was somewhat ‘saved’ by its COVID-19 sample transporting device that produced an increase in revenue from £164k to £6.46m – enough to keep its m.cap growing. And one must remember, this is just a device to transport COVID-19 and other pathogenic samples – it is not a test that could be theoretically be used by millions everyday!
What’s also interesting the above is that Novacyt shares do look severely undervalued given the profit they will make. We’d expect their m. cap to also grow significantly in the coming months which highlights the further potential that the ODX m.cap has as the markets continue to play catch up for these overlooked small caps.
So this leads us onto the first of our five reasons:
The five reasons why buying Omega Diagnostics shares could generate big returns
- M. Cap has room to grow significantly: It’s far easier to go from ‘1 to 2’, then it is from ‘5 to 10’ per say. Omega has a relatively low m.cap compared to its peers even with the surge in its share price.
- Translating expectations into financials: Omega’s rise has become on the basis of expectations and plenty of promise – just the stage that Novacyt was at once upon a time. Now if it can turn those expectations into financials, it is a no-brainer to see what will happen to its share price just as it did with Novacyt.
- Crunchtime is coming and relentless news flow is expected: Everything that investors have been expecting that has led to Omega Diagnostics trading on sentiment is now due; MHRA approvals, orders, partnerships, government discussion outcomes – it is all expecting in the coming week(s). Positive outcomes on these areas will inevitably generate further gains.
- Omega has its fingers in a lot of promising pies and has a safety net: The UK Rapid Test Consortium, Mologic and potentially Avacta itself – Omega has its fingers in a lot of the most promising COVID-19 testing and gold-standard pies. The UK RTC looks to be revolutionary in the antibody testing space, Mologic has been involved in Heathrow trials and Avacta – well the expectation is huge on Avacta with its rapid saliva-based antigen test as per its m.cap. Add to this other diagnostics products and China as a growth market in food intolerance – Omega has created a reassuring safety net for existing investors.
- The wider macro environment is favourable for diagnostics: Just as the global population started moving around with some form of confidence, an inevitable second wave struck. A COVID-19 vaccine may come in the next 6 months, it may come in the next year or even the next 2 years – either way quality, rapid COVID-19 antigen and antibody testing will be here to stay for quite a while, on a daily basis and in masses. And while there is uncertainty about antibodies and COVID-19 one cannot deny that a test that can be used at-home with high accuracy will be invaluable to reassure the population as well as assess the response to a potential vaccine.
Please note: this is an opinion and not a recommendation to buy or sell shares in ODX. It should be used for information purposes only.