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Where Does Fulgent Genetics Go From Here?

By Brian Orelli, PhD and Keith Speights - Mar 25, 2021 at 7:02AM

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COVID-19 testing has been a huge opportunity for the genetic testing company, but how long will it last?

Fulgent Genetics (FLGT -2.66%) capped off 2020 with a mammoth fourth quarter. Revenue was up 3,400% thanks to the company's move into COVID-19 testing. In this video from Motley Fool Live, recorded on March 8, Fool.com contributors Brian Orelli and Keith Speights discuss Fulgent's guidance for 2021, the challenges the genetic testing company faces, and what investors should be focused on in the months and years to come.

Brian Orelli: Moving onto genetic testing company, Fulgent Genetics. They reported fourth-quarter earnings last week. Fourth-quarter revenue skyrocketed 3,400% year over year to $295 million that was bolstered by the COVID-19 tests, but even the non-COVID revenue from their historical genetic testing was up 43%. Fourth-quarter adjusted earnings skyrocketed, $267.5 million, or $6.20 per share. They hadn't even hit $1 million year in the year-ago quarter and had $0.04 a share. The company projects 2021 revenue of $800 million, that would be up 90% year over year. What do you think investors should make of Fulgent's results?

Keith Speights: Hey, Fulgent hit a home run. Those results were absolutely outstanding. Just by comparison, Wall Street analysts, the consensus estimate anyway, look for revenue of a little under $200 million. Fulgent beat that by nearly 50% with $295 million. They blew that away. Analysts were looking for adjusted earnings per share of $4.05 and Fulgent delivered $6.20. So again, just about nearly 50% or so higher than what analysts were looking for. Absolutely trounced the expectations. Any way you look at it, this was a fantastic quarter for Fulgent Genetics. They also gave what I thought was a very good outlook for 2021, 90% year-over-year revenue growth is very good.

Orelli: On top of last year certainly.

Speights: Yeah. On top of last year's 3,400% growth. Everything is looking really good for the company. When Fulgent announced those results, they announced them after the market closed, during after hours trading, the shares jumped over 30%. The next day, the shares quickly took off. They jumped over 30%. But ultimately most of those gains were given up. The stock didn't end up nearly that high.

I think the reason why is that investors realize that most of this growth is fueled by COVID-19 testing. I think there's some real concerns that after 2021, that COVID-19 testing revenue could dry up considerably, not totally evaporate, but I think investors are looking at the future and they're wondering and worrying that COVID-19 testing, which Fulgent is relying on so much right now for its revenue, might taper off a lot. So I think there's some real concerns there about what's in the future.

The key thing to watch is you mentioned the 43% non-COVID revenue growth, which isn't even close to 3,400% total revenue growth. But I think the thing for investors to watch is how Fulgent builds its non-COVID business in 2021 for the future. Again, COVID-19 is still going to be important. We're going to still have COVID-19 testing probably from here on out. But it's going to be less of a growth driver for the company. I think investors have a right to be a little worried about what's going to happen. But at least the immediate future looks really, really bright for Fulgent.

Orelli: I think it's really one of those companies. It's really difficult to figure out how to evaluate at this point because we just don't know what 2022-2023 is going to look like for the company. I completely agree with you. Keeping an eye on that non-COVID genetic testing revenue growth is really going to be important for investors because that's not going to go away when COVID goes away. So I think that's really key to the company.

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