Fulgent Genetics,

Fulgent Genetics, Inc. (NASDAQ: FLGT), is a technology company which offers genetic testing to provide physicians with clinically actionable diagnostic information to improve quality of patient care. 

Key highlights 

• Explosive performance for FY2020: On the back of the differentiated technology platform, which the company has built, it delivered some dynamic numbers. In FY 2020, it produced revenue of USD 421.7 million, an increase of 1,200% from USD 32.5 million in 2019, while net income stood at USD 214.3 million. 

• Robust outlook for 2021: For Q1 2021, the company expects to generate revenue of USD 325.0 million and approximately USD 800.0 million for the full year 2021, which would represent a growth of 90% year-over-year. The company anticipates that of this USD 800.0 million, approximately USD 70.0 million would be realized from Next Generation Sequencing (“NGS”) testing, and the remaining USD 730.0 million would be realized from non-NGS testing. Furthermore, the group also expects to drive healthy gross and operating margins by leveraging its proprietary technology platform, generating approximately USD 380.0 million.

Financial overview of FY2020

Source: Company 

• In FY2020, the company delivered a revenue was USD 421.7 million, an increase of 1,200% from USD 32.5 million in FY2019, primarily due to an increased number of billable tests.
• Gross profit stood at USD 331.9 million in FY2020, against USD 18.4 million in the previous corresponding period; the rise in gross profit was primarily due to higher revenue.
• The company's net income for FY 2020 stood at USD 214.3 million, against a loss of USD 0.4 million in the previous corresponding period.

Risks associated with investment

The level of success depends on the company’s ability to generate and grow sales. Moreover, its results of operation fluctuate from period to period. These fluctuations can occur because of various factors, including the prices they charge for tests due to changes in product, customer or payor mix, competitive factors, technological changes and government regulations.

Valuation Methodology (Illustrative): EV to EBITDA 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company’s differentiated technology platform helped in achieving a healthy result. The company made inroads with numerous new customers, established new reimbursement agreements, expanded capacity and commercial capabilities, and have grown the direct-to-consumer genetic testing platform. The group continued to demonstrate improving leverage in Q4 2020 with a record gross margin of 82% and an operating margin of 77% while generating income of USD 6.20 per share. The company remain optimistic about its positioning for the quarters ahead and expect to see revenue growth of at least 90% for the full year 2021 to USD 800 million, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of USD 85.53 on March 04, 2021. We have considered OPKO Health Inc, Global Cord Blood Corp, CRH Medical Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 04, 2021). Source: Refinitiv (Thomson Reuters)

Velodyne Lidar Inc.

Velodyne Lidar Inc. (NASDAQ: VLDR), is the first public pure play lidar company, which is known worldwide for its portfolio of breakthrough lidar sensor technologies. It provides smart, powerful lidar solutions for autonomy and driver assistance.

Key highlights

• Under legal investigations: Various legal entities are busy in investigating the company regarding possible breaches of fiduciary duty and other violations of law by the board of directors of Velodyne Lidar Furthermore, the Company disclosed that the Board had removed David Hall as Chairman of the Board and terminated Marta Hall's employment as Chief Marketing Officer of the Company, after the Audit Committee's investigation.

• New member on board: Recently, the company announced the appointment of Hamid Zarringhalam to Board of Directors.

• Shipped record sensor units: The company shipped a record 4,237 sensor units in the fourth quarter of 2020. The company continues to build out its sensor products portfolio at different price points designed to meet many industries’ needs, including those with lower-price application entry points.

• Robust projects pipeline: As of February 19, 2021, the group’s pipeline of projects grew to 194 projects, up from 183 projects reported on December 31, 2020, and 131 projects reported on January 1, 2020. Furthermore, the company expects that these 194 projects could potentially yield a total of 9 million units shipped by 2025.

Financial overview of Q4 2020

Source: Company

• In Q4 2020, the company posted total revenue of USD 17.8 million, compared to USD 19.0 million in Q4 2019. Product revenue was USD 14.4 million compared to USD 18.2 million in pcp. The decline in revenue was primarily due to reduced production capabilities at its manufacturing sites late in the fourth quarter of 2020 due to COVID-19.
• The group posted a gross loss of USD 5.3 million in Q4 2020, against a gross profit of USD 0.2 million in the previous corresponding period. The higher cost of sales was the sole reason behind the gross loss.
• Due to higher operating expenses, which rose due to higher R&D, G&A, and sales and marketing expenses, the company posted a net loss of USD 111.5 million in Q4 2020, against a loss of USD 28.7 million in pcp.

Risks associated with investment

There are many risk factors which may limit the group’s ability to execute its strategy to achieve long-term growth objectives. Some of the risks include International Trade Regulations, Competition, low order booking, Currency fluctuations etc.

Stock recommendation

The Company estimates that it could have over USD 1.0 billion of revenue from signed and awarded projects from 2021 through 2025. Besides, the group continues with its top priority to invest in scalable lidar architectures, advanced manufacturing technology and software solutions. This underpins the Company's long-term business outlook of total gross margin percentage ranging in the mid to high 50s and EBITDA margin of more than 20%.

However, various legal entities are busy investigating the Company regarding possible breaches of fiduciary duty and other law violations by the board of directors. Moreover, on the valuations front, the stock is trading on a very high NTM EV/Sales multiple of 18.42x against the industry median multiple of 4.38x. Therefore, based on the above-stated reason, we prefer to remain on the side-line and recommend an "Avoid" rating on the stock at the closing price of USD 13.53 on March 4, 2021.

1-Year Price Chart (as on March 04, 2021). Source: Refinitiv (Thomson Reuters)

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