Omega Diagnostics: Is it a buy after its almost 35% rise today?

Omega Diagnostics has been a star coronavirus stock. But can it continue to be an impressive growth stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »