Co-Diagnostics Inc

Co-Diagnostics Inc (NASDAQ: CODX) is a molecular diagnostics company. The Company is engaged in developing, manufacturing, and marketing diagnostics technology.

Investment Rationale

• Industry leading margin profile: The company has reported industry leading margin profile in the third quarter ended September 30, 2021, with Gross margin stood significantly higher at 89% vs. industry median of 68.4%, EBITDA margin stood at 45.6% vs industry median of 14% and Net margin of 38.1% vs industry median of 6.0% respectively. This reflects strong competitive strength of the company against its peers.

Source: REFINITIV, Analysis by Kalkine Group

• No Balance Sheet risk: The company is virtually debt free with net cash in the balance sheet. This implies that investors are not exposed to any balance sheet risk and reflects financial strength of the business.
• Robust cash conversion cycle: The company cash cycle (days) stood at 126.5 for the quarter ended September 30, 2021, significantly better than the industry median of 174.9 days. Moreover, cash cycle has also improved from 208.9 days reported in the second quarter ended as of June 30, 2021.

Risk associated

The company is exposed to a variety of risks ranging from lower demand of its products, supply chain related issues on the back of resurgence in the COVID-19 cases. Further, given the penny cap market classification of the company investors are exposed to liquidity risk as well.

Financial Highlights: (Q3FY21, figures are in US Dollar)

Source:  Company filing

• During the third quarter of fiscal 2021, the company reported a revenue growth of ~38% to USD 30,101,353 on a YoY basis. This was primarily because of decent sales of LogixSmart COVID-19 test developed in response to the current COVID-19 pandemic.
• Gross profit surged by ~67.5% to USD 26,790,098 in the quarter under consideration, compared to gross profit of USD 15,997,472 reported in the same period of the previous financial year. And gross margin improved from 73.3% in Q3FY20 to 89% in Q3FY21, reported strong margin expansion.
• The company’s realized net income for Q3FY21 stood at USD 11,475,966, compared with net income for USD 15,731,532 realized in the same quarter of the previous financial year. The decrease in net income was mainly because of increase in operating expenses, offset by an increase of product revenues and resulting margins from those sales.
  

Valuation methodology (illustrative): Price-to-Earnings-based valuation

Analysis by Kalkine Group

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current, and historical multiple against peer group average/median and investment risks.

Stock Recommendation

The company’s performance in Q3FY21 was quite decent, with solid jump in revenue, reported strong gross margin expansion and maintained financial strength of the balance sheet. Moreover, the management believes that their existing capital resources and the cash generated from future sales will be sufficient to meet their projected operating requirements for the next 12 months. Also, the company has industry leading margin profile, which gives strong competitive advantage to its shareholders. Hence, based on the above rationales and valuation done using the above methodology, we recommend a “Speculative Buy” rating on “CODX” stock at the closing price of USD 8.26 (as on January 20, 2022).

1-Year price chart (as on January 20, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.