The coronavirus pandemic's sent many stocks reeling this year as businesses have closed down and had to reduce their operations. But there have also been a select few that have seen their share prices rise as a result of COVID-19. Among those stocks is the diagnostics and testing company, Quidel (NASDAQ:QDEL).

Prior to the pandemic, the stock's growth was minimal, but in just a couple of months its share price has gone from around $90 to more than $170 -- and that's after the stock fell from a peak of $210. Let's take a look at what's behind its rapid ascension and whether the stock's still a good buy today.

Emergency use authorization of its test turned the stock's fortunes

On March 17, the U.S. Food and Drug Administration (FDA) gave Quidel emergency use authorization (EUA) for its Lyra SARS-CoV-2 Assay rapid point-of-care test. That was just days after the World Health Organization (WHO) officially declared COVID-19 a pandemic.

Woman on a bus wears a surgical mask.

Image source: Getty Images.

With there being a significant need for accurate and reliable testing for COVID-19 to prevent the spread of the novel coronavirus, investors saw significant potential for Quidel's test. And given that it could be at least 18 months before there's a possible vaccine available, Quidel's test could be in demand until then.

The FDA has granted EUA for other tests since March, including Quidel's Sofia 2 SARS Antigen FIA, a point-of-care test that can produce results in as quickly as 15 minutes.

In addition to Quidel's test, the FDA's already approved four tests from Abbott Labs (NYSE:ABT), including one that can produce results within five minutes, the ID NOW COVID-19 test. There have been nearly 2.5 million ID NOW tests shipped out and the company has the capacity to manufacture 2 million per month. However, recent troubles with this test have emerged. 

On March 13, the FDA also granted EUA for a COVID-19 diagnostic test from Thermo Fisher Scientific (NYSE:TMO). The company initially had 1.5 million tests ready to ship and by April it was committed to producing between 5 to 10 million test kits per week. 

Swiss pharmaceutical giant Roche (OTC:RHHBY) was the first commercial test maker to receive EUA from the FDA for its cobas COVID-19 test. It also said that it would have millions of tests available every month. 

Can the stock continue rising?

As well as shares of Quidel have done this year, there are signs that things are starting to cool off. The stock's been falling in recent weeks as investors have become less concerned about COVID-19. The decline also began as President Trump pushed for states to reopen. The S&P 500 index has been rising since then, while shares of Quidel have been going in the opposite direction:

QDEL Chart

QDEL data by YCharts

Shares of the California-based business look to be related to the level of optimism that there is or isn't surrounding COVID-19. And a big part of whether the stock will continue to go up will undoubtedly depend on how concerned investors are about the pandemic.

When Quidel released its first-quarter results of 2020 on May 6, the company showed solid year-over-year revenue growth of 18%. The company's bottom line of $40.2 million was up an impressive 62% from the prior-year period as well. In fiscal 2019, however, the company's sales growth was a modest 2.5%, and its net income was down from the previous year.

Despite the company's strong performance of late, the stock currently trades at more than 80 times its earnings. That's a steep price to pay for a stock that's already been falling in recent weeks. A year ago, investors were paying less than 40 times earnings for Quidel, which was still a fairly big premium for the company.

On its own merits, Quidel is unlikely to muster up enough momentum to get back to its all-time high. The majority of the company's sales in 2019 came from its cardiac immunoassay segment, which generated $266.5 million in revenue, roughly half of Quidel's total sales of $534.9 million. And that segment of the business showed no growth from the previous year. Rapid immunoassay was its next largest segment with $191.7 million, and that was up 4.7% from 2018. Without a boost from testing due to COVID-19, there may not be a whole lot of reason to buy the stock given its high valuation and limited revenue growth.

Is the stock a buy?

Quidel's top and bottom lines will likely get a boost from all the testing the company's doing, potentially for multiple years. But that doesn't mean it's a good buy today. The healthcare stock's already trading at a hefty valuation, and it's going to need some even stronger performances in its upcoming quarters to justify its current price, let alone a higher one. Quidel shares may, however, be a good way for investors who want to diversify and hedge their portfolios. If there's another economic crash that happens due to COVID-19 this year, especially if there's another outbreak, that could send the markets crashing. And that could also send shares of Quidel right back up.

However, for long-term investors, there's likely a lot more risk than there is potential reward with investing in Quidel today. Unless the stock comes down to a more reasonable multiple of perhaps 30 times earnings or less, it seems to be too rich of an investment to buy today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.