The Omega Diagnostics (LSE: ODX) share price has surged in value this year. This positive performance may have attracted some investors to the company ahead of further gains.
With that in mind, today I’m going to take a look at the five things you should know before buying into the business.
Omega Diagnostics share price: need-to-know
The coronavirus pandemic has been a boon for Omega. The company is planning to produce as many as five different types of Covid-19 tests.
The self-test usability study for one of these, the AbC-19 Rapid Test, was completed last weekend. This put the product one step closer to coming to market.
As well as the Rapid antibody Test, at the beginning of September, Omega’s Mologic Covid-19 lateral flow antibody test was awarded its CE Mark. This quality marking means the business can now start marketing and selling the product.
These Covid tests are not the only strings to Omega’s bow. The group has three operating segments. As well as the coronavirus testing segment, there’s a division specialising in allergies and food intolerances. The third segment provides HIV testing equipment. This provides some diversification for the business.
Unfortunately, the company remains in its early stages. It’s not yet self-sufficient, which could be a red flag for investors looking at the Omega Diagnostics share price.
Earlier this year, the group raised £11m from investors to scale up production. While demand for the company’s products will provide much-needed cash flow, I wouldn’t rule out another cash raise in future as the business finds its feet.
Still, despite this drawback, it’s clear the business has tremendous potential.
Financial broker finnCap reckons Omega could ultimately be looking at £8m-£12m of revenue from its food intolerance testing business and £37m in revenues from Covid test sales. The group’s HIV test, VISITECT CD4, could be worth between £45m to £75m.
100% upside?
Based on these projections, the Omega Diagnostics share price looks cheap after its recent performance.
In the best case, the projections above suggest the business has the potential to generate £124m in annual revenues. Quest Diagnostics Inc is one of the largest testing companies in the world. And that stock is currently trading at a multiple of two times sales.
Based on this, it’s not unreasonable to suggest Omega could be worth as much as £248m in the best-case scenario.
However, I should stress this is the best-case scenario. The company is still finding its way, and a lot could wrong between now and annual sales of £124m.
That said, it’s clear there’s a tremendous amount of potential here. With upside potential as much as 100%, investors could be well rewarded if the company gets everything right.
Therefore, the best solution may be to own the stock as part of a diversified portfolio. Doing so would minimise downside risk while providing exposure to profits if the Omega Diagnostics share price continues to surge in value.