Cases of, hospitalizations for, and deaths attributable to COVID-19 are finally dropping significantly. That's fantastic news for society at large, but it means the makers of coronavirus tests are going to see the eye-popping growth rates they put up in 2020 turn negative. Many are already experiencing steep declines in their stock prices.

But at least one of those companies, Fulgent Genetics (FLGT -1.38%), promises plenty of growth even in a world without COVID-19. That could make the diagnostics company the best coronavirus stock for long-term investors to buy now.

A man getting a nasal-swab test from a clinician wearing protective outerwear and gloves

Image source: Getty Images.

Unprecedented growth

Fulgent's proprietary technology platform offers more genes for testing, and more flexibility, than its competitors. The company boasts of 19,000 single-gene and 900 multi-gene tests, as well as the ability to customize tests for specific customer needs.

Management classifies these customers into three groups: institutional, patient, and insurance. The institutional segment includes hospitals and medical institutions, laboratories, government bodies, and large corporations. Until recently, this group made up the majority of testing volume. Patients are simply individuals who pay for tests directly, leaving insurance as the third and final category. Growth was incredible for the nine months ending Sept. 30:

Segment Revenue for Nine Months Ending Sept. 30, 2020 Revenue for Nine Months Ending Sept. 30, 2019 Growth
Institutional $58.5 million $23.3 million 151%
Patient $1.3 million $0.4 million 259%
Insurance $66.9 million $0.5 million 14,500%
Total $126.7 million $24.1 million 425%

Data source: Fulgent Genetics.

Broadening sources of revenue

Growth has been especially robust in the insurance segment. After the company entered into several reimbursement agreements during 2020, volume exploded. Nearly all of the 2020 revenue from insurance companies came between July and September. Fulgent's 590,000 insurance claims filed in the third quarter were an increase of 9,000% over the previous quarter. Another indication of the company's expanding customer base is that more than a dozen companies spent at least $1 million with Fulgent during the third quarter. That's a number investors will want to see grow in future quarters.

Shareholders will also welcome a diversification of revenue; during those first nine months of 2020, just one customer accounted for 35% of the company's sales. Presumably, that customer is the City of New York, which contracted with Fulgent to support the return of students to its 1,600 schools. Management has also touted testing agreements with large counties in Florida and California, the Ohio prison system, and one of the largest pharmaceutical companies.

Proof of a scalable business

Understandably, the revenue growth from COVID-19 testing has been at the forefront of shareholders' minds. As daily testing volume has come crashing down, dropping 40% from just a month ago, Fulgent's stock has followed suit. Shares now trade about 40% lower than just a few weeks ago. Despite the drop, they're still up 175% from November, when the company raised its guidance due to a winter surge in cases and testing.

With the decline in coronavirus testing, Wall Street is worried that the scale the company was able to demonstrate throughout the year may be lost. COVID-19 tests are much cheaper than genetic tests, and they've dragged the average price of billable tests lower. However, the company was able to add that revenue without incurring costs at the same rate. This improved operating profit as a percentage of revenue, demonstrating the efficiency advantage that management has been claiming for years.


Billable Tests

Average Selling Price

Operating Margin

Q1 2020




Q2 2020




Q3 2020




Data source: Fulgent Genetics. Calculations by author.

A future without COVID-19

Buried among the more than 1 million tests performed in the third quarter was the 57% increase in volume for the company's core genetics business. With the ability to conduct 60,000 tests per day, Fulgent has plenty of capacity to leverage its fast turnaround times, test flexibility, and cost competitiveness to take market share. Management believes this will come easier now that the company boasts high-profile customers and a track record of successfully supporting a massive testing program.

The global genetic testing market is expected to grow by about 10% per year from a base of roughly $13 billion in 2019. That means Fulgent's $32.5 million in 2019 revenue was a market share of only about 0.25%, leaving a huge opportunity ahead of it.

Despite the near-term uncertainty, Fulgent Genetics is a fast-growing business in an expanding market, and it has managed to achieve profitability while meeting a once-in-a-century spike in demand. The stock will be volatile as the market tries to figure out how COVID-19 will affect the financials of each quarter, but the business is positioned to become a market leader over the long term. If they can stand the volatility, patient investors should be rewarded.