BusinessThe Monster Enterprise Lurking Behind Fulgent's COVID Outcomes

The Monster Enterprise Lurking Behind Fulgent’s COVID Outcomes

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Like many firms, Fulgent Genetics (NASDAQ:FLGT) has been labeled a “pandemic inventory” by some traders. It is easy to know why. In the newest quarter, 82% of Fulgent’s income got here from COVID-19 assessments. Nevertheless, buried beneath this headline statistic is a genetic testing enterprise that is rising like a weed and represents the way forward for the enterprise.

Picture supply: Getty Photos

Monster development behind COVID testing

In the newest quarter, Fulgent’s income grew to $126 million, a 124% enhance over the third quarter of 2020. Looking at earlier quarters, the general income outcomes for the corporate have moved in live performance with the amount of COVID testing. Income hit its peak at $359 million in Q1 2021 because the world was coping with the delta variant. Nevertheless, if we strip out the income from COVID testing, we see that Fulgent’s core enterprise, its Subsequent Era Sequencing (NGS) testing, has grown impressively.

Q3 2020

This fall 2020

Q1 2021

Q2 2021

Q3 2021

Core Income Development (YOY)

57%

43%

115%

296%

292%

SOURCE: FULGENT COMPANY FILINGS. YOY = year-over-year

Fulgent has secured some massive COVID testing contracts, most notably with Los Angeles County and the New York Metropolis College District, so a few of this income will stay for a while. Nevertheless, the long-term success of the enterprise will rely on Fulgent rising its NGS testing. It is clear that Fulgent has been capable of service the COVID testing demand whereas nonetheless rising its enterprise for the longer term. This will probably be important as COVID counts decline over time.

Acquisitions including to testing benefit

One of many aggressive benefits Fulgent believes it has is its menu of customizable genetic assessments. To additional increase that menu, Fulgent made two current acquisitions of firms that widened its publicity to new geographies and market alternatives.

In July 2021, Fulgent paid $20 million for a minority curiosity in Helio Well being, and in August 2021, Fulgent acquired CSI Inc. for $50 million in money and as much as $10 million in future milestone funds. Each firms increase Fulgent’s presence within the most cancers testing market, and Helio Well being particularly will increase Fulgent’s footprint in China. That funding is already paying off as Q3 worldwide income was up 180%, attributable largely to the investments in China. That is noteworthy as worldwide income is at the moment lower than 2% of general income, presenting an unlimited development alternative.

Buyers are lacking this chance

Regardless of this robust NGS testing enterprise, Fulgent’s inventory continues to be undervalued. On the time of this writing, Fulgent is up by nearly 73% yr to this point, handily beating the S&P 500‘s 24% return. Nevertheless, Fulgent solely trades at a price-to-sales (P/S) ratio of two.5.

The market is clearly viewing Fulgent as a COVID inventory and is nervous its income will fall off as testing decreases. Whereas it is true that over time there will probably be much less COVID-related income, a genetic testing enterprise rising at nearly 300% deserves the next valuation. Against this, Trendy (NASDAQ:MRNA), one other firm whose outcomes might be seen as being tied to the pandemic, trades at a P/S ratio of 9.8.

For present or potential shareholders, the newest quarterly outcomes confirmed the energy of Fulgent’s core testing enterprise. Administration was nimble in its pivot to COVID testing, and has used the ensuing revenues to pour sources again into the enterprise. There are few firms within the biotech area performing on the degree of Fulgent whereas additionally buying and selling at such a gorgeous valuation.

This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even considered one of our personal — helps us all suppose critically about investing and make choices that assist us turn into smarter, happier, and richer.





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