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Is Fulgent Genetics (FLGT) A Smart Long-Term Buy?

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·4 min read
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  • FLGT
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Old West Investment Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. All of the fund’s portfolios are outperforming the S&P this year by a wide margin, and they’ve been able to do this on the heels of a record 2020. The S&P 500 fell 4.6% in September but was still just a few percent from its all-time high. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Old West Investment Management, in its Q3 2021 investor letter, mentioned Fulgent Genetics, Inc. (NASDAQ: FLGT) and discussed its stance on the firm. Fulgent Genetics, Inc. is a Temple City, California-based clinical diagnostic genetic sequencing company with a $2.3 billion market capitalization. FLGT delivered a 50.90% return since the beginning of the year, while its 12-month returns are up by 136.66%. The stock closed at $78.62 per share on November 9, 2021.

Here is what Old West Investment Management has to say about Fulgent Genetics, Inc. in its Q3 2021 investor letter:

"In our second quarter of 2020 letter, I wrote about a very promising holding of ours, Fulgent Genetics. Fulgent is a genetic testing and diagnostics company involved in one of the hottest fields in healthcare. At the time of that letter, the stock was trading at $20 per share, up from our original purchase price of $6.00. Today the stock is trading at $84, and we think it still has significant upside.

Fulgent is led by visionary entrepreneur Ming Hsieh, who previously founded Cogent, Inc in 1990 and sold the company to 3M for nearly $1 Billion. Fulgent’s genetic testing business has great potential, and they very opportunistically expanded into Covid testing in 2020. The company is growing rapidly, has a debt free balance sheet and is gushing cash flow. Although Covid testing has provided explosive growth for the company, they have not lost focus on genetic testing, having grown that portion 296% year-over-year..." (Click here to see the full text)

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Based on our calculations, Fulgent Genetics, Inc. (NASDAQ: FLGT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FLGT was in 13 hedge fund portfolios at the end of the first half of 2021, compared to 18 funds in the previous quarter. Fulgent Genetics, Inc. (NASDAQ: FLGT) delivered a -19.23% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.