Wall Street seems worried that the arrival of coronavirus vaccines will take the wind out of the sails of this genetic and medical testing company. That view misses the big picture.
Nov. 28, 2020
The COVID-19 pandemic changed the landscape for stocks, accelerating trends that benefited some companies while pushing others to the brink of bankruptcy — or over the edge and into it. Now that approval of multiple coronavirus vaccines seems imminent, investors are trying to predict which stocks will do well once the threat recedes.
Long-term investors should be looking at the situation in a slightly different way. Companies that have technology or market positions that will sustain them as leaders or disruptors of their industries are likely to keep paying off for their shareholders long after the current chaos subsides. The prospects of some companies have actually been strengthened by the pandemic for the long term.
One such company is genetic-testing specialist Fulgent Genetics (NASDAQ:FLGT). The pandemic dropped a windfall in its lap and turned it into a coronavirus stock. Now, the market is reassessing the value of the company based on the idea that its tailwinds will soon go away, and its share price has fallen by 31%. But this health crisis has permanently improved the company’s prospects, creating an opportunity for patient investors.
Fulgent’s coronavirus tests have been game-changers for the company
Fulgent Genetics can hardly raise guidance fast enough to keep up with its business. When the company reported on Nov. 9 that third-quarter revenue was up 880% year over year, it raised guidance for full-year revenue by a whopping 74% to $235 million. Then on Nov. 23, it raised that estimate another 28% to $300 million.
This revenue surge has been driven by its PCR tests for SARS-CoV-2, including an at-home version, which have been wildly successful. Fulgent’s core business is low-cost genetic testing that it hopes will become part of standard medical care in time. But the company’s technology enabled it to develop COVID-19 tests rapidly, and it seized the opportunity. The result was a revenue stream that is dwarfing the core business at the moment.
The recent flurry of upbeat reports from COVID-19 vaccine makers has investors anticipating a significant decline in demand for coronavirus testing. As is often the case, the market is probably right about the short-term impacts, but missing out on the long-term picture. There are several reasons why Fulgent is a buy now.
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