After developing a novel coronavirus test in lightning speed, Co-Diagnostics’ (NASDAQ:CODX) stock soared to the stratosphere. The shares of the previously little-known company surged from less than $1 at the end of 2019 to a high of nearly $22 at the beginning of March.
But since then, for good reason, the stock has lost over 50% of its value. It looks like some investors have become aware of the many red flags that the company is presenting.
Specifically, the company is facing clearly superior competition, and there’s a chance that its tests could be defective. Further, Co-Diagnostics has not partnered with a major company on the test and seems to have only one major American customer for it.
Superior Competition and Potential Defects
At least two coronavirus tests are much faster than Co-Diagnostics’ offering, which reportedly yields results in “less than two hours.” Specifically, Cepheid, a unit of the conglomerate Danaher (NYSE:DHR), unveiled a test that renders a verdict in 45 minutes. Another test developed by medical device giant Abbott Laboratories (NYSE:ABT) provides results “in as little as five minutes.”
And from a convenience and health standpoint, a test recently developed by Rutgers University and two companies appears to take the cake. Specifically, the university’s test uses saliva to determine whether patients have the virus. That is more comfortable than the mechanism used by other tests, which typically involve inserting swab into the noses or throats of the people being tested.
More importantly, Rutgers’ test minimizes contact between healthcare professionals and those being tested, reducing the chances that the professionals will become infected. In fact, it appears that, with Rutgers’ tool, people can self-administer the test without any assistance from healthcare professionals.
Co-Diagnostics’ test is reportedly less expensive than competing tests. And according to the company, it can be administered more quickly than other diagnostic tools.
But in this case, I think the speed at which results can be reported and the safety of healthcare professionals are much more important than the cost of the test. Further, since the test developed by Rutgers eliminates the need for healthcare professionals to be involved with the testing process, it is probably cheaper overall than Co-Diagnostics’ offering.
Co-Diagnostics developed its test in just one week. Further, the company said that it bypassed the “trial-and-error” process that’s usually incorporated into the development of such tests. And before this year, the company’s revenue was meaningfully below $100,000 per year, indicating that its previous products were neither widely deployed nor highly reputable.
It’s true that the Food and Drug Administration granted an emergency approval to the company’s test. But after the CDC used a faulty test for weeks at the outset of the coronavirus crisis in the U.S., I wouldn’t bet a lot of money on the American government’s ability to quickly and accurately evaluate tests for the virus. Cumulatively, these points make me think that those who believe that the test may not be accurate could be correct.
Other Red Flags
Co-Diagnostics hired a private company called Promega to manufacture the test. Promega is an American company that has been in existence for over 40 years, and it reportedly had nearly $450 million of revenue last year, so it does not appear to be a fly-by-night firm. Still, I would have felt better about Co-Diagnostics if it had partnered with a Fortune 1000 company on the test.
Finally, although the company stated on March 5 that “numerous requests have been received from US clinical laboratories for the Company’s reagents,” as far as I can tell, it has not named any customers in the U.S. outside of its home state of Utah.
The Bottom Line on CODX Stock
Despite its recent pullback, the stock is still up about 1,000% in 2020 solely on the basis of its coronavirus test. But the company is facing a great deal of tough competition in that area, and it has multiple red flags. As a consequence, I recommend that investors take their profits on the stock at this point.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any of the aforementioned securities.