The company wants to sell up to 5.29 million shares, including over-allotment options to the underwriters, at a price range midpoint of $13 per share.
Net IPO proceeds would, therefore, be $59.9 million and the company would have a fully diluted market cap of $236 million.
In my analysis of Fulgent's IPO, Fulgent Genetics IPO Shows Promise, I was optimistic about the company's prospects due to its strong financial performance to-date.
I withheld a recommendation on its IPO stock until the company's valuation expectation became known.
Fulgent is growing top line revenue dramatically, doubling its previous year's tally to reach a current year run rate of $14.8 million.
Gross margin is high, at 64%, and growing, as is cash flow from operations, which generated $1.82 million for the six months ended June 30, 2016.
I also believe FLGT is well positioned in a large and growing market, with estimates reaching $3.6 billion in 2022.
To be sure, Fulgent has plenty of competition, which I detailed in my original post. A $3.6 billion market size will continue to attract plenty of interest.
The company is profitable, after stripping out a one-time financing-related item.
The salient question is whether FLGT's stock is worth $236 million at IPO.
I provide two valuation methods below to help answer that question.
Price/Sales Valuation Method
Since FLGT is growing revenue significantly faster than FMI, I would assign it a Price/Sales multiple of 9x. Its current annual revenue run rate of $14.8 million multiplied by 9 would, therefore, imply a valuation at IPO of $133 million.
EV/Sales Valuation Method
Alternatively, a post-IPO valuation at Fulgent's proposed valuation would result in an EV/Sales value of 12x vs. 5.2x for FMI, indicating FLGT wants to have an enterprise value of $12 for every $1 of sales.
Fulgent is growing faster than Foundation, so FLGT would deserve an EV/Sales of 7x at most, which would imply an IPO valuation of $140 million.
Based on the two valuation approaches, FLGT should have an IPO valuation range of $133-$140 million, not the company's intended valuation of $236 million.
Therefore, I don't recommend FLGT's IPO stock at its proposed valuation.
It's simply too expensive and I recommend avoiding the IPO.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.