Atomo Diagnostics Ltd [ASX:AT1] is up significantly on its IPO share price, with a gain of 25.64% adding to the 125% surge yesterday.
Here’s a quick look at how trading is progressing for the Atomo share price since the IPO:
Atomo is the first company to list since 27 February, with some companies holding off listing since the COVID-19 outbreak. We look at its finances and the outlook for the Atomo share price.
Atomo share price surges on first day and continues form today
With a listing price of 20 cents, yesterday’s surge to 45 cents gives you a sense of how eager investors are to snap up any ‘solution stock’ shares in the on going lockdown.
Atomo does Rapid Diagnostic Tests (RDTs), which resemble pregnancy tests.
You can see what this looks like below:
Source: Atomo Diagnostics Limited
The company focussed on HIV tests initially and sold 550,000 kits to consumers and professionals since 2015.
There were also a further 450,000 kits sold to subcontractors and other RTD manufactures during this period.
In recent weeks however, the company made a quick pivot towards COVID-19 RTDs, which it says can deliver a test result in as little as 15 minutes.
This would be more rapid than many current tests, and goes a long way to explaining the success of their IPO, with 300,000 kits set-aside specifically for COVID-19.
Current tests for coronavirus can take two or more days in Australia.
From the outside, all of this sounds good.
But let’s dig into their finances a bit to figure out if this is a flash in the pan, or the start of what could be a long run…
Outlook for Atomo share price could hinge on ability to scale up production for global reach
Taking a look at their half-yearly through to 31 December 2019, which was released with the IPO, a few things stand out.
For instance, they posted a loss $2.25 million in the half-year period, up on $2.1 million in the same period the year before.
Increasing losses are rarely seen as a good sign, so what of progress in sales?
Revenue jumped from $64,808 for H2 2018 to $937,324 H2 2019.
As a result, you could say they made significant progress marketing their product in the last two years.
They had more than $12 million in cash, and have now added $30 million through an IPO.
So in my eyes, an acceptable burn rate, a heap of cash and a potentially breakthrough product, you can understand the appeal.
The question will now be how they can scale up the product for global reach.
The cash balance could be crucial for this push.
As for where the Atomo share price will go in the coming days and weeks, a lot depends on the contours of the pandemic’s spread.
I wouldn’t be surprised if there is a short-term pullback as early investors take profits followed by a surge as hype builds, such is the nature of small-cap stocks operating in this space.
I’d also be looking for a dip in the Atomo share price as the market more generally gets a glimpse of what COVID-19-era earnings look like.
My gut tells me that there will be another leg down for major indices, and this could drag small-caps like Atomo down with it, regardless of whether the company is doing the right things.
If you are looking for stocks resistant to this kind of scenario, make sure to get our editor, Callum Newman’s latest report on the stocks he thinks are best placed to weather the storm.
You can download our special report here.
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