UK shares have fared surprisingly well since the stock market crash in March. Some better than others, of course. Sectors like pharmaceuticals, technology, and gaming have thrived. Two such fortunate companies are Omega Diagnostics Group (LSE:ODX) and Frontier Developments (LSE:FDEV). Considering their rapid share price rise, you might be tempted to buy these UK shares in another stock market crash. But would that be a wise move?
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.
