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How Wide Is Fulgent Genetics' Moat?

By Keith Speights and Brian Orelli, PhD – Dec 3, 2021 at 1:47AM

Key Points

  • Fulgent offers a wide variety of tests, which gives it a relatively big moat.
  • The company is becoming the go-to place for doctors to order genetic tests.
  • Fulgent is also moving into adjacent markets, which could increase its moat.

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The genetic testing company's moat is expanding.

Moats are important to any business. They're the competitive advantages that differentiate the company from its rivals. In this Motley Fool Live video recorded on Nov. 16, 2021, Fool contributors Keith Speights and Brian Orelli answer a viewer's question about how wide the moat is for genetic testing company Fulgent Genetics (FLGT 0.87%).

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Keith Speights: Sanjay says, "On a recent show about Guardant Health, GH, you mentioned your preference for drugmakers to test makers, since the former have deeper moats. Is Fulgent's moat likewise shallow for the same reason?"

Brian Orelli: Yes. I think Fulgent's moat is bigger because it has a lot of tests. Its propensity to be able to add those very quickly, I think, is helping it become the go-to place for doctors. And I think once you get to be the go-to place for doctors, doctors are creatures of habit, and they're going to continue to go to Fulgent.

I like Fulgent's moves into adding things that are tangential to its genetic tests. It's added some tests that are more like staining of tumor samples to look at what's going on within the cell but not necessarily genetically.

I think that those will be helpful to Fulgent's moat to try to increase it. The main reason I haven't invested in Fulgent is because I have a hard time valuing it because I don't know where COVID-19 testing is going to, and so that makes it very difficult.

Brian Orelli, PhD has no position in any of the stocks mentioned. Keith Speights owns shares of Guardant Health. The Motley Fool owns shares of and recommends Fulgent Genetics, Inc. and Guardant Health. The Motley Fool has a disclosure policy.

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