Revenue Drops And Regulatory Delays Will Spark A Cautious Rebound

Key Takeaways

• High execution risk and regulatory uncertainty threaten the company's ability to turn innovation into timely commercial gains, while persistent losses pressure financial sustainability.
  
• Intense competition, pricing pressures, and regulatory compliance challenges may hamper expansion, reduce margins, and limit market penetration in both domestic and international markets.
  
• Heavy reliance on limited product approvals and uncertain market demand creates significant risks for sustainable revenue growth, profitability, and long-term financial stability.

Catalysts

Operates as a molecular diagnostics company that develops, manufactures, and sells reagents used for diagnostic tests that function through the detection and/or analysis of nucleic acid molecules in the United States and internationally.

• While the global move toward decentralized, accessible healthcare and heightened emphasis on pandemic preparedness could expand Co-Diagnostics' addressable market and drive future top-line revenue growth, the company's ability to realize these gains critically depends on achieving regulatory approvals, which inherently carry delays and uncertainty that may prolong losses and strain cash flow.
  
• Although the need for improved infectious disease surveillance and rapid point-of-care diagnostics remains a powerful tailwind-particularly as governments and institutions invest more in molecular testing-the company's financial results show a steep drop in revenue year over year and continued operating losses, raising concerns about whether it can sustain operations long enough to capture these secular growth shifts.
  
• While Co-Diagnostics is progressing toward clinical evaluations and regulatory submissions for a diversified pipeline targeting TB, HPV, COVID-19, and multiplex respiratory panels, execution risk remains high given heavy upfront R&D spending and uncertainty over converting clinical milestones into regulatory clearances and timely commercialization, with ongoing negative net margins as a result.
  
• Even though technological advancements and international partnerships-like the CoSara joint venture in India and anticipated regulatory submissions in high-need markets-open doors for expansion, the company continues to face challenges from growing competition in low-cost regions and the potential for price pressures, both of which threaten to compress global revenue and hamper gross margin improvement.
  
• Despite the promise of cloud-enabled epidemiological tracking to support data-driven public health interventions, the rising scrutiny over health data privacy and regulatory compliance could limit adoption, increase operational expenses, and slow market penetration, dragging on future earnings and margin recovery.

Co-Diagnostics Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Co-Diagnostics compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Co-Diagnostics's revenue will grow by 279.1% annually over the next 3 years.
• The bearish analysts are not forecasting that Co-Diagnostics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Co-Diagnostics's profit margin will increase from -3586.0% to the average US Medical Equipment industry of 12.4% in 3 years.
• If Co-Diagnostics's profit margin were to converge on the industry average, you could expect earnings to reach $6.8 million (and earnings per share of $0.15) by about August 2028, up from $-36.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from -0.3x today. This future PE is lower than the current PE for the US Medical Equipment industry at 27.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.84%, as per the Simply Wall St company report.

Co-Diagnostics Future Earnings Per Share Growth

Risks

• Co-Diagnostics reported a steep decline in total revenue, dropping from $2.7 million in the prior year (which included $2.5 million in grant revenue) to just $0.2 million in product sales for the most recent quarter, indicating a lack of sustainable commercial revenue streams that could significantly threaten top-line growth and future earnings.
  
• The company's entire near-term commercial success is heavily dependent on securing regulatory approvals (such as FDA 510(k) clearance and approvals in India and South Africa), introducing substantial regulatory risk and potential delay to future revenues and profitability if trials or submissions do not proceed as planned.
  
• Ongoing net losses and negative EBITDA, coupled with a reduction in cash reserves to $13.4 million, mean Co-Diagnostics may face ongoing liquidity challenges, and must rely on equity or debt financings and uncertain grant funding, which could dilute shareholders or increase interest expenses, thereby negatively impacting net margins.
  
• The text highlights a strong focus on four main diagnostic products (COVID-19, multiplex ABCR, TB, HPV), suggesting limited product diversification in the commercial pipeline, thus exposing the company to risk if these products fail to achieve anticipated adoption or if market interest in infectious disease testing wanes, ultimately constraining future revenue growth and earnings stability.
  
• Strategic plans are based on relatively optimistic assumptions around the continued demand for COVID-19 testing and strong uptake within India and Africa, but face long-term risks from potential shifts in infectious disease trends, regulatory changes, or increased competition in low-cost regions, all of which could erode future revenues and compress gross margins.

Valuation

• The assumed bearish price target for Co-Diagnostics is $1.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Co-Diagnostics's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $54.7 million, earnings will come to $6.8 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $0.32, the bearish analyst price target of $1.0 is 68.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.