Co-Dx PCR Platform And FDA 510(K) Clearance Will Expand Market Reach

Key Takeaways

• Advancements in PCR platform and manufacturing enhance commercialization, potentially increasing revenues and profit margins through scale efficiencies.
  
• Strategic partnerships and global clinical evaluations in key regions support R&D and expansion, driving long-term revenue growth and operational efficiencies.
  
• Regulatory challenges, legal expenses, and competitive pressures hamper Co-Diagnostics' revenue growth and market expansion, while increasing reliance on equity financing poses dilution risks.

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.

• The advancement of the Co-Dx PCR platform and associated test pipeline, alongside the new manufacturing infrastructure, strengthens the company's foundation for commercialization, which could lead to increased future revenues and profit margins due to scale efficiencies.
  
• The completion of the FDA 510(k) clearance application for the Co-Dx PCR Pro instrument and COVID-19 test for over-the-counter use positions the company for future revenue growth through new market entry upon approval.
  
• Global clinical evaluations in markets like South Africa and India for the TB test signify potential expansion into high-demand regions, which could drive significant international revenue growth.
  
• Strategic partnerships with organizations such as the Bill & Melinda Gates Foundation and the NIH's RADx Tech program provide financial and technical support, potentially enhancing R&D capabilities and accelerating new product launches, positively impacting long-term revenue and earnings.
  
• New manufacturing facilities in both Utah and India, aimed at reducing costs and supporting the Make in India initiative, are expected to provide operational efficiencies and cost-saving benefits, thus positively impacting net margins and earnings.

Co-Diagnostics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Co-Diagnostics's revenue will grow by 115.2% annually over the next 3 years.
• 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 -961.4% to the average US Medical Equipment industry of 12.9% in 3 years.
• If Co-Diagnostics's profit margin were to converge on the industry average, you could expect earnings to reach $5.0 million (and earnings per share of $0.12) by about May 2028, up from $-37.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.3x on those 2028 earnings, up from -0.3x today. This future PE is greater than the current PE for the US Medical Equipment industry at 30.8x.
• 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 7.3%, as per the Simply Wall St company report.

Co-Diagnostics Future Earnings Per Share Growth

Risks

• The regulatory challenges faced by Co-Diagnostics, such as the withdrawal of their 510(k) application for a COVID-19 test, indicate potential delays in commercialization, impacting revenue growth.
  
• Co-Diagnostics reported a significant decrease in total revenue from $6.8 million in the previous year to $3.9 million in 2024, which may reflect challenges in generating consistent product sales and could negatively affect future earnings.
  
• The company incurred substantial legal expenses, rising to $7.0 million in 2024 from $1.7 million in 2023, due to defending securities and derivative suits. This increase in non-operational expenses could strain net margins.
  
• Despite plans for global expansion, Co-Diagnostics faces competitive pressures and market entry barriers, especially in regions like India, which present risks to their projected market share and revenue generation.
  
• Co-Diagnostics reported a net loss of $37.6 million in 2024, which, combined with a continued emphasis on raising capital through equity financing, suggests potential dilution risks for shareholders, impacting earnings per share.

Valuation

• The analysts have a consensus price target of $5.5 for Co-Diagnostics based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $39.0 million, earnings will come to $5.0 million, and it would be trading on a PE ratio of 55.3x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $0.37, the analyst price target of $5.5 is 93.3% 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.