Is Fulgent Genetics Still a Good Stock to Buy?

Fulgent Genetics (FLGT 1.24%) ranks among the best-performing stocks on the market so far this year. After skyrocketing in January, the stock has pulled back considerably over the last few weeks. In this Motley Fool Live video recorded on Feb. 17, 2021, Fool.com contributors Keith Speights and Brian Orelli talk about whether Fulgent Genetics is still a good stock for long-term investors.

Keith Speights: All right, Brian, let's talk about another high-flying stock in the COVID-19 arena and it's become a really hot topic for investors. Fulgent Genetics ticker, there's FLGT. The stock more than tripled at one point, it's gone down. So it's not quite at that level now, the companies COVID-19 test are enjoying very strong demand. Do you think this genomics stock is still a good pick for long-term investors to buy.

Brian Orelli: I mean, it's really hard to tell, it's really hard to value. All of these coronavirus companies we have been talking about, testmakers, what we're talking about in vaccine makers, or even treatment, companies developing treatments because we just don't know how long this pandemic is going to last. We don't know what the market for tests or vaccines or for treatments are going to be in two or three years. We are long term investors here and so we don't really know, it's really hard to value them.

The market cap is like $3.5 billion. At the end of November, they upped their 2020 revenue guidance, because they saw an uptick in testing in use of their COVID-19 test. They were looking for at least 300 million in revenue for 2020. I don't think I've seen a date for when they are planning on releasing fourth-quarter earnings.

Yet they're non-COVID revenue, which is, they do genetic testing. The revenue sort 57 percent a quarter over a quarter in the third quarter. But that was off a low base for the second quarter when people weren't really seeing their doctors and so therefore the revenue had slipped, but they definitely have seen it come back in their non-COVID-19 genetic tests. I think if you want to buy the company, you should be buying it for genetic tests which are going to be around well into the future where the COVID-19 is questionable.

Speights: I think some of the upwards volatility we've seen with the stock has been at least in part due to the high short interest. I think we're seeing something of a short squeeze with Fulgent, but they've also had some really good news from their business with higher sales and like you mentioned, Brian, the increased guidance or outlook for 2020, and so they've had some good underlying business dynamics that are very positive in addition to the potential effect of the short squeeze.

But I think you're exactly right, this isn't a stock you buy to just flip quickly because there's no telling what it's going to do. I think it will be highly volatile. But over the long run, the field of genomic testing is a good growth opportunity, and Fulgent Genetics could certainly be one of the winners in that market over the next decade or so.

Orelli: I think even though I'm not really bullish on the COVID-19 test in the long term, I think the fact that they were able to pivot so quickly to COVID-19 tests and ramp up so quickly shows how good their management is and so well, COVID-19, they go away, I think that's a good sign for long-term investors than whatever the next opportunity to Fulgent is, that management is going to be able to take full advantage of it.

Speights: Yeah. I think that flexibility and ability to rapidly adapt is certainly one of their competitive advantages. They also have a low-cost structure. So those are factors that could work to their advantage going forward beyond COVID-19.

Orelli: Yeah, I think they have developed all of their software in-house. So while it's definitely a healthcare company, they're very big into the tack and the ability to process samples very quickly and efficiently, which lowers their cost, as you said.