Can a diagnostics company that makes most of its money from coronavirus tests keep growing in a post-pandemic environment? Fulgent Genetics (NASDAQ:FLGT) shares are still far below their peak in February, despite reporting record revenue in the fourth quarter.

Could this stock deliver market-beating gains over the long run, or are its new shareholders setting themselves up for heartbreak once the COVID-19 vaccine supply catches up with demand? To find out where the company is headed, let's start with a quick look at its recent accomplishments.

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Record revenue 

Recently, Fulgent Genetics reported fourth-quarter revenue that rocketed 3,400% higher year over year to $295 million. To generate all that revenue, the company had to process and bill government payers and health insurers for 3.2 million tests, the vast majority of which were for COVID-19.

That was a lot more tests than Fulgent Genetics had performed before the pandemic, but it still pales in comparison to the number of tests processed by established giants of the diagnostics industry like Quest Diagnostics (NYSE:DGX) and LabCorp (NYSE:LH). As of last August, both companies had already performed more than 10 million COVID-19 tests.

Shaking in their boots?

If management teams across the fiercely competitive diagnostics industry aren't nervous about Fulgent's recent performance, they haven't been paying attention. LabCorp and Quest Diagnostics are big companies that manage high volumes, but their customers aren't impressed. For example, the Centers for Medicare and Medicaid Services (CMS) cut its payment rate for COVID-19 tests that take longer than two days to process last October. 

Despite a 25% reimbursement rate for tests that take more than two days to turn around, a trade association that represents LabCorp, Quest Diagnostics, and their peers still complained. According to the diagnostics industry giants, rapid changes in demand and constraints in the supply chain made turning around nearly all their COVID-19 in less than two days an insurmountable challenge.

LabCorp and Quest Diagnostics began the pandemic with armies of laboratory technicians on their rosters, while Fulgent Genetics had just 139 employees as of March 1, 2020. Despite being a microscopic competitor, Fulgent Genetics didn't get tripped up by the two-day turnaround rule enacted by the CMS. In January, California recognized Fulgent as the state's No. 1 COVID-19 test provider with 97% of tests returned within 48 hours and 90% within 24 hours. 

Getting noticed

Following a competitive bid process, the New York City Department of Education selected Fulgent to help monitor the nation's largest school system through the 2021 school year. A more recently signed contract with Clark County will make Fulgent the back-to-school testing partner in Las Vegas.

School systems aren't the only big new clients eager to work with the company. The Department of Homeland Security has selected Fulgent, and three of its peers, to run COVID-19 tests over the next five years. It's hard to say how many tests Fulgent will manage, but this $2 billion contract will give the company ample opportunity to stand out from the pack.

What's next?

Shares of Fulgent have been pressured by concerns that demand for COVID-19 testing could disappear as soon as vaccine supply catches up with demand. Despite a recent price bump, the stock is trading at the seemingly low valuation of just 7.4 times this year's earnings estimates. At this price, the stock could outperform over the long run if earnings simply remain stagnant for eternity. If Fulgent can offset incoming COVID-19 losses and continue growing, though, patient shareholders could get rich.

Investors are right to worry about COVID-19 testing revenue drying up just as quickly as it appeared. Before assuming Fulgent Genetics can't offset those losses over the next several years, though, it's important to realize the diagnostics industry is intensively competitive because the services they provide are largely commoditized.

We're already seeing signs of success for Fulgent's non-coronavirus services. In 2021, the company expects revenue from next-generation sequencing to climb around 92% year over year to reach $70 million.

The next couple of years could be extremely volatile for the stock, but the company's ability to compete on price and performance makes buying some shares worth the risk right now.

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.