Fulgent Genetics (NASDAQ:FLGT) 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.

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.