Please ensure Javascript is enabled for purposes of website accessibility

Is It Too Late to Buy Fulgent Genetics Stock?

By Zhiyuan Sun - Jun 29, 2021 at 6:08AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

All is not lost for this COVID-19 testing company.

Fulgent Genetics (FLGT -6.09%) is arguably the cheapest coronavirus stock on the market -- if not the cheapest biotech of any type out here, with a price-to-earnings (P/E) valuation of just 6.6. What's more, the company has about $697.4 million in cash on its balance sheet and negligible debt. Subtract that from the company's $2.43 billion market cap, and Fulgent appears even more undervalued in terms of its enterprise value (EV).

Investors, however, are not buying into the discount story. After all, the company is heavily dependent on providing billable COVID-19 tests in the U.S., where the pandemic is largely subsiding as the government's mass vaccination campaign has successfully inoculated more than half of all adults already. Meanwhile, the stock is sitting on a 462% year-over-year gain. Given all that, is it too late for new investors to buy Fulgent Genetics?

Nurse taking a nasal swab for coronavirus testing.

Image source: Getty Images.

The bad news first

In the first quarter, Fulgent's revenue increased by a stunning 4,500% year over year to $359.4 million. Simultaneously, its net income rose to $200.7 million from a loss of $1.956 million in the prior-year period. The company billed for 3.8 million tests during the quarter -- about 290 times its test volume in Q1 2020.

Unfortunately, the company anticipates revenue from its non-COVID testing services to amount to just $100 million for the full year (gaining 174% year over year). If we assume that Fulgent's COVID tests will become irrelevant in the near future, then the stock is trading for about 17 times EV-to-sales. That is pretty expensive indeed.

The good news

Investors are probably giving the company less credit than it deserves. While new COVID-19 cases have declined sharply in many areas of the U.S. to levels below where they were in March 2020, that's simply not the case in many other areas in the world. In fact, Americans who want to travel internationally would still need to grab a negative COVID-19 test result, usually three days before departure, before heading to their destination.

That's not all; back in February, Fulgent was one of four labs selected to provide COVID-19 testing solutions to the Department of Defense. That contract is worth $2 billion in total and will last for up to five years. With all these coronavirus variants spreading, the company has a pretty sound value proposition in providing tests for national defense purposes and could supply many more in the future.

The verdict 

Aside from testing for COVID, Fulgent provides chromosome and gene-sequencing services that help physicians better detect cardiovascular illnesses, epilepsy, and hereditary risk factors for various types of cancer. Since many patients postponed getting these types of discretionary tests done during the pandemic, the company's gene-sequencing business is now experiencing a tailwind as people start visiting their doctors again for non-urgent reasons.

Overall, due to continued demand for COVID-19 tests for people traveling internationally, the possibility of more defense department stockpiling of such tests, and the company's solid gene-testing business, I think Fulgent has a fair shot of achieving its $830 million revenue guidance for the full year.  

That number represents a 97% increase year over year, which seems enticing relative to its stock valuation -- even more so since the biotech's stock price fell sharply in February. It's now down 50% from its peak. So for those who have been thinking about buying this stock on the dip, now seems like a great time to do so.

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fulgent Genetics, Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fulgent Genetics, Inc. Stock Quote
Fulgent Genetics, Inc.
$59.86 (-6.09%) $-3.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.