Is Butterfly Network Stock a Buy?

Butterfly Network (NYSE:BFLY) is a biotechnology company that manufactures the only handheld ultrasound machine in the world. This portable probe directly connects to a smartphone or tablet and can take high-resolution scans of a patient’s whole body. The company also provides a comprehensive ultrasound software package on a monthly membership basis.

After Butterfly’s July 2020 IPO, the stock rose to a peak of around $26 per share in early 2021. But BFLY has fallen off sharply, currently trading around 75% down from where it opened. From a 52-week high of $8.72, Butterfly Network stock has dropped to around $2.34.

Investors were hoping to see more rapid adoption of the company’s products and services but sales have stagnated, with revenues coming in slightly below estimates in the first quarter of 2023, and that has shaken some investors’ faith.

But the stock has rallied back up around 17% over the past month as many investors still believe in Butterfly Network’s unique and disruptive product, and some industry analysts believe it’s only a matter of time before portable ultrasound probes become the standard.

So is Butterfly Network stock a buy?

Butterfly Network Partnerships Tailwind

In the first quarter of 2023, the company announced a partnership with a major academic medical center in the US with the goal of developing initiatives that would make Butterfly’s technology the standard of care in hospitals. A similar deal announced in the same quarter started a collaboration with the largest medical school in the country.

But traditional ultrasound is only the beginning for Butterfly. The company just received FDA clearance for a new AI-enabled Auto B-Line Generator.

This groundbreaking technology should be able to identify and compare the lung condition of a patient with a machine-learning algorithm, helping providers diagnose abnormal lung conditions with much more precision than in the past.

Butterfly Network Products and Services

Butterfly iQ+ is the company’s flagship product. It’s a single probe that can be connected to a phone or tablet and it’s compatible with Android or iOS. The iQ+ can provide high-quality scans from a unit that fits in your hand.

With over 20 presets available that alter the unit’s parameters for each unique care setting, the iQ+ is a major upgrade over many providers’ current solutions.

Powered by the company’s proprietary Ultrasound-On-Chip technology, this semiconductor-based solution will replace large, stationary machines that are costly to purchase and maintain. And iQ+ Vet leverages the same technology to help veterinarians care for pets.

Butterfly Blueprint is an ultrasound software platform that’s intended to operate seamlessly with the iQ+ probe. It’s designed to be full-service software that can do everything from updating Electronic Medical Records (EMR) with the current patient data to providing feedback and analytics.

Another major feature of Blueprint is its ability to store images and data from the iQ+ on Butterfly’s cloud. The goal of the subscription-based software is to eliminate the need for providers to turn to third-party software. The company offers a variety of pricing plans that can be customized to fit the user’s needs.

Butterfly Network Financial Performance

The company’s total revenue of $15.476 million was slightly less year-over-year (YOY) from $15.574 in 2022. Analysts hoped that sales would increase by around 1%. Still, the company’s US sales were up around 15%, with the revenue decline mostly coming in the global and vet markets.

Product revenue was down nearly 20%, but software sales increased around 45% to make up the difference. Gross margin did increase from 53.6% to 58.7% YOY, largely due to the higher purchase price of the iQ+ and increased subscriptions. Total operating expenses were down 23.7% from $57.9 million in 2022 to $44.1 million in the first quarter.

As a result, the net loss for the quarter was $33.5 million, which was a decrease from the $44.5 million net loss in 2022. In spite of the loss, the biotech has $198 million of cash on hand, which the company expects to continue to keep Butterfly flying until it becomes profitable.

The increased stock price brings the company’s Price-to-Sales (P/S) ratio to 6.7, which is high compared to many competitors in the 3-4 range. That raises concerns that the company could be overvalued.

Analysts’ Ratings for Butterfly Network

In spite of sluggish revenues and valuation concerns, 3 out of 4 analysts consider BLFY to be a buy.

The fourth analyst still has the stock as a hold. The most bearish analyst sees the stock trading where it is currently, around $2.25 for the next 12 months.

The most bullish analyst estimates that BFLY could reach $6.00 over the next 52 weeks, adding up to a 165% gain. The median forecast of $4.75 would still be over a 100% gain for the stock.

Is Butterfly Network Stock a Buy?

Butterfly Network is a biotech company that has developed a portable ultrasound probe that can be paired with most smart devices. It also provides a subscription-based membership service that offers everything from cloud storage for scans to EMR updates to presets for multiple care specialties.

The company’s disruptive technology led investors to buy in early, but sluggish sales and slow adoption of the platform have caused a selloff. Even with the current rally, BFLY is likely to face volatility until sales start to show promise. The company currently isn’t profitable but it has enough cash on hand to keep afloat until revenues see a boost.

But the huge selloff makes Butterfly Network a compelling stock because it’s a disruptive company with a revolutionary product. Risk-averse investors may want to see more revenue growth before they buy in, but speculative investors could certainly consider BFLY for a long-term bet.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.