Fulgent Genetics (NASDAQ: FLGT) was one of the first companies to develop a PCR COVID-19 test and it has been highly lucrative. In this segment of “Backstage Pass” on Motley Fool Live, recorded on July 27, Fool.com contributors Matt Frankel and Jason Hall discuss some of the reasons why it could be a good time to invest in the business.
Matt Frankel: So Jason, why don’t you give us a quick overview of Fulgent and why you doubled down on it or however much you added?
Jason Hall: So Fulgent Genetics. This is a company that’s very much grouped in with the COVID stocks, so Ming Hsieh, the founder of the company, has a long history of success as an entrepreneur. He founded a business that he sold to, I can’t remember, one of the big industrials made a boatload of money, took a lot of that money, and he founded Fulgent Genetics before taking it public as a genetics testing business.
Originally it was focused on rare pediatric diseases, so trying to serve an underserved area. Began expanding that genetic testing model over time, COVID happened, they threw a million dollars at it and figured out how to make a PCR COVID test and it became hugely valuable.
Signed deals with a lot of cities, with a lot of colleges, and school boards, and health groups to do their PCR test. A lot of big companies were using it for testing, and the company generated massive amounts of cash. Again, the return on that invested capital was incredible because not only did they only spend a million dollars to develop it, the actual cost of goods sold is very low, like mid-teen dollars and they’re getting $100 or more for these tests.
They’ve used that money to leverage and grow the business, made a number of acquisitions of small acquisitions to expand their geographical profile, and also get more different types of testing because testing scale is really important in this business. If you’re working with a healthcare provider or large hospital or research organization, they want to be able to do panels. They don’t want to have 10 different test providers. They want one that can do all 10 tests, so they’ve done a wonderful job of building that up.
They’ve also done a really good job of replicating what they’re doing in the U.S. and China, which is a massive growth market for genetic testing. The stock price just came down so much from the COVID highs, which made sense because that testing has certainly come down, but they’re still making good money from that testing and the multiples that it trades out to me just became way too attractive considering the growth prospects and the fact that I really believe in this leadership team.
Ming Hsieh, a couple of other executives that were executives with him at his business prior. They clearly know how to work together. They’ve brought in some subject matter experts in genetic testing and in infectious disease and I’ve just been really impressed with what they’ve done and I think they have wonderful prospects.
Jason Hall has positions in Fulgent Genetics, Inc. Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fulgent Genetics, Inc. The Motley Fool recommends the following options: long January 2024 $50 calls on Fulgent Genetics, Inc. and short January 2024 $50 puts on Fulgent Genetics, Inc. The Motley Fool has a disclosure policy.