Thursday, December 9, 2021

A Small Cap Equity holding: Fulgent Genetics, Inc. (FLGT, $85.84): “Fulgent’s Good Genes” By: Joey Sullivan, AIM Student at Marquette University

Fulgent Genetics, Inc. (FLGT, $85.84): “Fulgent’s Good Genes”

By: Joey Sullivan, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


·         Fulgent Genetics, Inc. (NASDAQ: FLGT) provides unique and affordable genetic testing services for commercial, institutional, and individual customers in the United States and seeks to create the most effective, and wide-ranging genetic tests on the market.

·         Fulgent has recently launched an at-home neutralizing antibody test for COVID-19.

·         Expansion of COVID-19 testing business has resulted in a major company shift that creates substantial management challenges.

·         Operations were initially funded by founder Ming Hseih, but in more recent periods, by cash from operations and equity financings.

·         Major points of volatility, but high potential for reward.

Key Points: Originally founded as a Next Generation Sequencing (NGS) testing company, customers can select from a customizable menu of genetic tests—all which feature lower-than-average costs and faster-than-average turnaround times. While NGS is considered by management to be their core business, as of 2019, they have made major strides in the COVID-19 testing field.

The company continues to develop genetic tests, and thanks to the large revenues generated by their COVID-19 testing pivot, they are finding the ability to rapidly expand the core business in hopes to provide “one-stop cancer screening.” Both the NGS testing and COVID-19 testing fall under the singular segment of the company, genetic testing.

During their Q2 earnings call, figures were shared regarding the breakdown of revenues, and only 17% of their reported revenue came from NGS testing, while the other 83% came from COVID-19 tests. While this may seem concerning, it is important to note that the NGS testing aspect of the company has grown 296% year-over-year. This is encouraging, especially when paired with the fact that they reported nearly $130 million in revenue from COVID-19 testing that can be used to grow the NGS portion of the company and has through a series of recent acquisitions. During the Q2 earnings presentation, they shared the key aspects of what sets them apart in the genetic testing industry: their unique technology platform, extensive test menu, and superior cost structure.

The company has also recently appointed Dr. Lawrence Weiss as their Chief Medical Officer, who will spearhead the process of expanding the company’s genetic testing options, and making use of their acquisitions in a meaningful way

As the pandemic slows, COVID-19 tests will prove to be a temporary provider of revenue for Fulgent. The company realizes this, which is why they seek to disrupt the $80 billion cancer diagnostics market. Fulgent has proved they are committed to the future of NGS testing. In a volatile market, subject to heavy regulation, if Fulgent can execute their business plan and continue to leverage their NGS testing and COVID-19 testing through the end of the pandemic, there is a bright future ahead.

What has the stock done lately?

Over the past 6 months, FLGT stock has grown nearly $10, from $76.48 on May 3 to $86.00 at close today. The stock has been relatively volatile, with its lowest price over the past 6 months being $66.80, and highest being $110.87. Given that they have been heavily influenced by the sale of their COVID-19 tests, any news regarding COVID will impact their stock price, which explains the volatility. Recently, they purchased a minority stake in Helio Health, which specializes in liver cancer treatments, and they are announcing new data from HelioLiver at The Liver Meeting 2021 later this month. If the data they present shows promising liver cancer testing results, a jump in stock price is to be expected. The stock will continue to be volatile as a result of ever-changing news regarding COVID-19, but in the long run will depend heavily on Fulgent’s acquisitions and progress in their NGS testing portion.

Past Year Performance:

FLGT has increased 151.17% over a 52-week period and increased 46.36% YTD. The 52-week high-low for FLGT is 30.05 - 189.89. The 52-week beta for Fulgent is 0.76 representing lower volatility in comparison with the market.

My Takeaway:

According to Zacks Investment Research, FLGT’s Q3 earnings are expected to decline, but given the stock’s past performance, this may be an opportunity to increase the number of shares in the AIM Small Cap portfolio. Fulgent has contracts signed with Houston Area Public Schools for the sale of COVID-19 antibody tests and will continue manufacturing and selling COVID-19 tests through the end of the pandemic. Given the current revenue stream from the sale of COVID tests, and how the company intends on using that revenue to increase their acquisitions so they can become a disruptor in the genetic testing industry, the company seems to have “good genes,” and as a result, the probability of future growth is high.