The ODX share price jumps! Should I buy the stock?

The ODX (LSE: ODX) share price has rocketed in recent weeks. Over the past four months, shares in the diagnostics and testing business have increased in value by more than 80%. Over the past 12 months, the stock has increased in value by nearly 600%.  

The company’s longer-term performance is a bit more sedate. The ODX share price bumbled along at a price of between 15p to 20p between the beginning of 2016 and March of 2020.

However, when the pandemic struck, its fortunes began to change. It has offered its experience in the testing and diagnostic space to help the government’s testing programme. ODX had planned to produce as many as five different types of Covid-19 tests. 

And today, the firm has announced that it has agreed a contract with the UK Department of Health and Social Care (DHSC) to provide manufacturing capacity for Covid-19 lateral flow antigen tests.

A new deal 

The company hasn’t said how much of an impact this agreement will have on its future potential. Nevertheless, management has disclosed that the deal could provide a “significant contribution” to future performance.

There’s no doubt this is a massive deal for the firm. ODX anticipates it will be able to produce approximately two million tests per week by the end of April. Production can begin as soon as the DHSC has a test that has passed performance and regulatory hurdles. 

There’s no doubt in my mind this is a tremendous opportunity for the company. Still, I think it’s challenging to place a value on the ODX share price right now. According to its latest figures, full-year group revenue for its current financial year is expected to be £9.3m.

Management believes the organisation will report earnings before interest tax depreciation and amortisation (EBITDA) loss of around £2.1m-£2.3m on this figure. 

How much is the ODX share price worth? 

Next year, the company expects to deliver “substantial revenue growth compared to this financial year.” Management also sees tremendous opportunities in the group’s legacy food intolerance testing business alongside its Covid-19 testing division.

As the financial terms of the latest deal with the DHSC haven’t been disclosed, it’s difficult at this stage to tell how much of an impact this will have on ODX’s revenue growth next year.

Based on what we do know, City analysts have pencilled in revenues of £12.6m for its 2021 financial year, and £14.7m for 2022. This could translate into earnings per share of around 0.9p. I should caution that these are just forecasts at this stage.

There’s no guarantee the company will meet these targets. Equally, it could surpass these growth projections. 

Still, looking at its current market capitalisation of £170m, I think the ODX share price might have gotten ahead of itself in recent weeks. The company’s future is highly uncertain, and we don’t know how much of an impact the latest deal will have on its bottom line at this point. 

Therefore, while the City expects big things from the business in the next two years, ODX’s current valuation makes me uneasy. I’m not a buyer of the shares at current levels as a result.