January 27, 2022

Fulgent Genetics: A Smallcap That Got Flushed with the Market

 From Seeking Alpha:

The case for picking up Fulgent (FLGT) shares in this downdraft is pretty straightforward. Their core NGS (next-generation sequencing) business is growing at triple-digit rates (215% in Q3 guided to deliver $115M in 2021) despite the pandemic, and will likely exit 2022 on a run rate approaching $250M a year.

Even valuing the shares just on their NGS business makes already a pretty compelling case. Why? Well, by the end of Q4 2021 or certainly by the end of Q1 2022, the company will have $1B in cash.

If you subtract that from their market cap then the shares trade at roughly 3x EV/S on their core NGS business alone, a business growing at triple-digit rates.

The cash comes mostly from the company's massive Covid testing business, and with the Omicron variant, this is likely to have generated huge additional revenues in Q4 and Q1 and is still likely to produce significant revenues going forward.

Consensus revenues for 2022 is nearly $600M, which put the shares on a 1.1x EV/S multiple. While we acknowledge that their Covid testing business will wind down at some point, every quarter that they still generate significant revenue from this business adds large amounts of cash to an already overflowing balance sheet.

One might also appreciate that the point at which their massively profitable Covid testing business will wind down is progressively moved forward in time (there were many who expected this to happen last year already).

And all the way their core NGS business is growing at triple-digit rates while the share price keeps moving down. Something's got to give here and with valuations already this low, it's not hard to see what, in our opinion.


The Fool owns shares and noted in January that shares were cheap.  

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