Shares of Fulgent Genetics (FLGT -1.45%), a genetics testing provider, were dropping sharply on Friday and were down by 13.9% as of 11:37 a.m. EST, after falling by as much as 17.3% earlier in the day. The company did not report any news that scared off investors, but a Wall Street analyst downgraded its stock, which explains its woes on the market today.
The analyst, Credit Suisse's Erin Wilson Wright, downgraded Fulgent Genetics' stock to underperform from neutral. According to Wright, despite benefiting from COVID-related tailwinds (largely thanks to its coronavirus-testing solutions), the revenue spike the company experienced won't last forever.
The analyst also gave Fulgent a new price target of $40, slightly down from her previous target of $42. Shares of the genetics testing specialist currently go for roughly $61, which means Wright's price target represents a significant downside, and that's after it has already dropped by double digits today.
Wall Street analysts' opinions are just one data point investors should consider before deciding whether to buy or sell shares of a company. And for what it's worth, there is another side to Wright's argument. First, note that Fulgent Genetics thinks it will generate $300 million in revenue for its fiscal year 2020, representing more than 800% year-over-year growth.
The coronavirus testing market will also keep growing at a decent pace in the coming months and years. This segment is highly competitive, but the healthcare company has successfully captured enough of this market to affect its top line significantly.
What's more, even after jumping by 303.9% last year, the stock is trading at a reasonable 11.3 times forward earnings, compared to a forward P/E of 24.19 for the S&P 500. These factors and others make Fulgent Genetics at least worth considering, in my view.