Medical device maker Fulgent Genetics (FLGT) has received quite the revenue boost from NGS (Next-Generation Sequencing) surveillance, which is used to track coronavirus mutations that are integral to vaccine management, notes technical expert Matthew Timpane, CMT of Schaeffer's Investment Research.
Covid-19 testing is bound to continue as new variants of the SARS - CoV - 2 strain continue to emerge. It's a sobering thought, but herd immunity is a long way out, so testing will continue albeit at a lower rate. And despite recent international expansion, many countries still don't have Covid-19 under control.
Fulgent Genetics will continue to be a heavyweight in the field thanks to its status as a low-cost provider, and the hope is that the success in Covid-19 testing should carry over to other genetic and disease-specific testing segments of the business.
One storyline to watch: with a market cap of only $2.44 billion, Fulgent Genetics could be a takeover target for larger companies.
The fundamental backdrop of Fulgent paints an optimistic picture. Over $1 Billion in cash reserves is expected by the end of the year – a veritable war chest thanks to Covid-19 testing.
So, another storyline to watch for the second half of 2021: how will the company deploy it? It's also reasonable to expect Fulgent's revenue growth to taper off from the extreme levels its enjoyed the last year. Yet, 2022 projections are still at nearly 97%, so there's reason to believe this is not just a flash in the pan.
On the charts, Fulgent Genetics stock fleshed out a bottom after pulling back to its 200-day and 40-week moving averages. The shares recently broke out of a large symmetrical triangle pattern, hinting at a continuation to the upside.
At one point up 252% by February, a pullback should have been expected, as profit-takers stepped in on such a quick run-up. But now up 44% year-to-date, this presents a unique buying opportunity to get long or add to your position and trade against the aforementioned trendlines, with that uptrend a convenient stop level. And with a forward-year price/earnings ratio at 6.68, FLGT becomes an intriguing target as a value trade.
Short interest has rolled over from its mid-April peak, and with 30% of FLGT's total available float sold short, a contrarian would look at this setup as a potential for a tidy short squeeze.
Despite the recent volatility, FLGT options are reasonably priced at the moment, too per the stock's Schaeffer's Volatility Index (SVI) of 68%, which stands higher than just 6% of all other readings in its annual range. This implies that options players are pricing in relatively low volatility expectations.