Butterfly Network (NYSE: BFLY) was a penny stock trading for less than $1 in August. Now, it’s up to $4.40 and a $1bn market cap after a sizzling 368% surge in just six months. Given that I hold the shares in my ISA, surely this is a cause for celebration, right? Well, not quite.
Rather than a beautiful butterfly spreading joy across my portfolio, this one’s been more like a moth gathering dust at the bottom of it. You see, I didn’t invest at $1, or even $2 or $4. I bought shares of this digital health firm for $13 a pop back in 2021!
Therefore, even after this massive rally, I’m still down by around 66%.
Should I keep holding to see if the stock finally metamorphoses into a wining investment? Let’s take a look.
What the company does
Butterfly Network has developed the world’s first handheld, whole-body ultrasound probe (Butterfly iQ). This offers high-quality imaging at a fraction of the cost of those traditional (clunkier) machines in hospitals.
Built on patented Ultrasound-on-Chip technology, it has miniaturised the technology onto a single semiconductor. These devices connect seamlessly to smartphones and hospital computer systems, making ultrasound more accessible, portable, and affordable. Butterfly Network’s cloud-based platform stores the data.
Beyond hospital diagnosis and pregnancy scans, they’re used by medical students and vets to conduct examinations in-clinic, on farms, or even in wildlife conservation settings.
What went wrong?
When the company went public in 2020, it said it aimed to “disrupt a large and expanding total addressable market” valued at $8bn. It projected that revenue would grow to $122m in 2022, up from $44m in 2020.
At that time, interest rates were still close to 0%. Then post-pandemic inflation struck and rates soared. The stock dropped 80% between February 2021 and 2022 as investors quickly dumped loss-making growth firms like Butterfly Network.
The company’s growth also disappointed. In 2022, revenue was $73.4m (not $122m), and then it fell 10% to $66m in 2023.
This is the main risk here. The company needs to grow a lot in future, and this isn’t certain. Meanwhile, it raised $76.5m by selling shares last month, so further shareholder dilution can’t be ruled out.
Growth is back!
Investors have warmed back up to the investment case because CEO Joseph DeVivo, appointed in 2023, has reignited the growth engine. In Q3, revenue jumped 33% year on year to $20.6m — the fifth consecutive quarter in which it met or exceeded expectations.
The growth is being driven by its next-generation Butterfly iQ3. This AI-powered device contains a much more powerful semiconductor chip that produces faster image processing and higher-resolution ultrasound scans.
Another exciting development is Butterfly Garden, a platform enabling third parties to create custom AI applications using its imaging technology. Since launching in August 2023, it has attracted 17 partner companies, expanding Butterfly Network’s chip licensing potential.
Looking ahead, the company aims to achieve cash flow breakeven by the end of 2027 and to exceed $500m in revenue by 2030. For context, revenue is expected to grow 20% to $90m this year. That translates into a forward price-to-sales ratio of about 10.
Given the company’s vastly improved growth outlook, I’m hanging on to my shares. I think it’s worth considering for risk-tolerant growth investors with a stomach for volatility.
This post was originally published on Motley Fool
