Can Fulgent Sustain Sky-High Growth Post-Pandemic?

Diagnostic test maker Fulgent Genetics (NASDAQ; FLGT) closed Wednesday at $97.20, down 11.28%, or $12.36. It’s hovering near its 50-day moving average.

The company reported its fourth-quarter results on March 4 after the close.

Fulgent posted revenue of $295 million and earnings per share of $6.20. Top-and bottom-line results were both up astronomically from the year-ago quarter’s sales of $8.4 million and earnings of $0.04 per share.

Revenue growth has been in the double digits for the past eight quarters and accelerated in the past three.

The company’s 2021 guidance calls for 90% growth in revenue.

Why the whopping increases and optimistic guidance? Chalk it up to Fulgent’s Covid testing products.

After the earnings report, Fulgent stock vaulted 31% intraday, to $112, before settling down to end Friday’s session at $92.34, a gain of $6.81, or 7.96%.

In the subsequent sessions, the stock bounced around the vicinity of its 50-day line, not yet gaining upside traction.

Doubts About Post-Covid Business

After such a stellar earnings report, why isn’t Fulgent rocketing higher?

Analysts and investors are uncertain whether the company can maintain those growth levels as the Covid-19 pandemic winds down. While the guidance for this year indicates confidence in continued strength, it’s unclear how Fulgent will continue to grow in 2022 and beyond.

Analysts expect the company to earn $12.39 per share this year, a 36% increase over 2020.

However, Wall Street sees those earnings numbers returning to earth in 2022, to $4.83 per share. That would be a 61% year-over-year decline.

Nonetheless, Piper Sandler boosted its price target to $140 from $135, rating the stock as overweight.

In addition to Covid testing products, Fulgent’s businesses include Beacon Carrier Screening, which checks for risk of severe inherited conditions.

Other lines of business include Parkinson’s, Alzheimer’s and dementia panels; chromosome testing; and cardiovascular, cancer and epilepsy panels.

In the earnings call, CEO Ming Hsieh cited the company’s next-generation sequencing panels. These are used to screen for numerous conditions, including night blindness, as well as cardiovascular, immunodeficiency and skeletal issues.

High Expectations For NSG Testing

 “Despite various lockdowns across the country, volume from NGS tests grow from 59,000 in 2019 to 72,000 in 2020,” said Hsieh.

He added, “Looking ahead in 2021, we expect our NGS business will grow above 92% year over year to $70 million. And looking at our business overall, we expect revenue to almost double in 2021compared to the record revenue achieved in 2020. Armed with our technology platform, we expect to continue to see strong growth and operating margins due to our best-in-class cost structure.”

Chief financial officer Paul Kim added that the company expects growth in its at-home testing platform, Picture Genetics, which supports Covid and non-Covid testing.

“On the non-COVID front, we continue to add content and introduce more tests into multiple areas, including oncology and reproductive health,” Kim said.

Fulgent has a market capitalization of $2.8 billion, which puts it in mid-cap territory.

Caught In A Short Squeeze?

It has a beta of 1.39, meaning it’s more volatile than the broader market. On its chart, it’s easy to see how the severity of intraday price swings intensified lately.

Some of that volatility is likely due to short covering.  As of February 12, in the midst of the volatile trading, the short percent of Fulgent’s float was 20.78%. That’s lower than in January, but still high.

The stock continues to show volatile trade.

It’s currently consolidating 49% below its February 9 high of $189.89. This is not an ideal place for investors to initiate a new position, particularly given the uncertainty about the company’s post-Covid business.

It’s certainly possible that the stock will rally in the coming months on strength of its non-Covid testing panels. But it’s also possible that it will languish or turn lower as Covid business gradually dwindles. This is a stock best left on a watch list for now.