The Zoono Group Ltd (ASX: ZNO) share price has been a very poor performer on Wednesday.
In afternoon trade the antimicrobial solutions provider's shares are down a sizeable 9% to $1.68.
This latest decline means that the Zoono share price is now down by almost 50% since peaking at $3.29 in July.
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Why is the Zoono share price sinking lower?
Investors have been selling Zoono's shares following the release of its first quarter update this morning.
While that update reveals very strong sales growth in comparison to a year earlier, it also shows a sizeable slowdown in comparison to the last quarter.
Zoono, which sells antimicrobial hand sanitisers and sprays, reported first quarter sales of NZ$15 million. This is down 28.2% from the NZ$20.9 million it achieved in the fourth quarter of FY 2020.
If this level of sales can be maintained, it will deliver annual sales of NZ$60 million.
Judging by its share price performance today, investors may believe this isn't enough to justify a A$300 million valuation, let alone the A$600 million market capitalisation it had in July.
What else did Zoono report?
Zoono reported positive operational cash flow for the quarter of NZ$2.8 million, down from NZ$5.3 million for the June 2020 quarter.
However, this couldn't stop its cash at bank decreasing from NZ$10.3 million to NZ$7.5 million. Though, management notes this was driven largely by tax and dividend payments of NZ$7.5 million. Without these payments its cash balance would have been NZ$15 million.
At the end of the period the company had inventories of NZ$14.2 million available to meet current demand. Management advised that stock is held at strategic global locations to enable timely deliveries.
Should you invest?
I think investors would be better off keeping Zoono on their watchlist for now.
While I believe COVID-19 will lead to increased use of hand sanitiser over the long term, it is a highly competitive market.
In light of this, it is difficult to gauge just what level of sales Zoono will be able to maintain in the coming quarters.
As a result, I would suggest investors wait for things to settle down before trying to value the company.
In the meantime, I would sooner buy a healthcare share such as CSL Limited (ASX: CSL) ahead of Zoono.
