Brought to public trading by an SPAC merger in early 2021, Butterfly Network (NYSE:BFLY) is a small but extremely innovative medical technology company specializing in portable ultrasound devices.
The company’s market cap at the moment is just $551.5 million, and shares are down nearly 50% in the last three months despite a 1-year gain of over 125%.
So, is Butterfly Network one of the best small-cap stocks to buy today and hold for long-term growth potential?
Butterfly Network Has Some Key Advantages
Butterfly Network’s major innovation is in ultrasound devices that are small, handheld and portable while still powerful enough for full-body scanning, making them excellent solutions for point-of-care imaging.
It has also integrated cutting-edge AI and advanced imaging features to increase the utility of its devices. As a result, Butterfly Network is the global leader in point-of-care ultrasound with about 145,000 total customers.
It’s worth noting that Butterfly Network is innovating in a relatively fast-growing niche within the medical imaging space. Ultrasounds have become vastly more sophisticated and more affordable over the last several years, leading to more widespread use as a primary medical imaging tool.
Before the decade has run its course, the ultrasound market is forecast to grow at a compounded annual rate of 6.8% and reach a projected size of $13.9 billion. Among research analysts, the consensus is medical imaging is set to grow at a rate of about 5.0%.
Butterfly Network’s Impressive Real-world Performance
While technological advantages are all well and good, Butterfly Network has also taken the all-important step of demonstrating early commercial viability.
Last year, it was able to generate $82 million in revenue, up from $65 million in 2023. The top line for Q1 2025 came in at $21.1 million, up 20% from the year-ago quarter.
Although Butterfly Network has yet to achieve profitability, it has made some respectable progress in that direction. Q1’s net loss of $14.0 million was about 36% lower than the loss of $21.8 million the company posted in Q1 of 2024. Butterfly Network was also able to reduce its cash used in operations by over 40%, a major improvement that helped its bottom line.
For 2025 as a whole, Butterfly Network anticipates revenues of $96-100 million, resulting in another year of approximately 20% revenue growth. The company also ended Q1 with a respectable cash reserve of $155.2 million, giving it ample room to invest in marketing and future R&D.
BFLY’s Valuation Is Appealing
Although Butterfly Network isn’t yet generating earnings to measure its price against, the stock’s current price-to-sales ratio of 5.7 is relatively modest for such a young and fast-growing company.
If the company can hike earnings and move closer to net profitability, BFLY could prove to be undervalued at current prices.
This view is strongly reflected in the average analyst price target of $4.17, nearly 90% above the most recent price of $2.23.
Where Are the Pitfalls?
So far, BFLY has a lot going for it. As a fast-growing medtech firm in a growth market with narrowing losses and a reasonable valuation, Butterfly Networks checks many of the boxes investors may be looking for when scanning small-cap stocks for value opportunities. But BFLY also comes with its fair share of pitfalls.
First and foremost is the significant risk posed by ongoing share dilution. Though the year-over-year growth rate has usually only been between 2 and 3%, the number of BFLY shares has crept steadily upward in each quarter.
Early in Q1, the leadership team completed a new public offering that raised $81.7 million in new capital. This amounts to almost 15% of the company’s $551.5 million market cap. Though the new capital will likely help speed up efforts to scale the business, such large offerings of new stock severely disadvantage existing shareholders by watering down their ownership stakes in the business and driving share prices lower.
Butterfly Network also isn’t expecting to turn a profit anytime in the immediate future, a fact that may delay returns for its investors. The 2025 EBITDA guidance projects a loss of $37-42 million.
Although Butterfly Network has made some very real progress toward reducing its losses and moving closer to profitability, it doesn’t seem that investors can expect positive earnings from the company right away.
Is Butterfly Network the Best Small-Cap Stock?
The long-term growth potential should allow BFLY to deliver outsized returns over multiple years.
Even though Butterfly Network has its issues, the company’s combination of promising technology, a sensible valuation and positioning in a growing part of the medical imaging field makes it a decent stock for risk-tolerant investors to look at. As a small, high-growth company, the stock may not appeal as much to conservative investors.
Butterfly Network may be in a very good position to take advantage of new technological innovations in medical imaging. With its leading position in the point-of-care ultrasound space, Butterfly has a strong existing customer base to which it can roll out new AI features and improved imaging devices. With ultrasound still advancing, Butterfly’s foothold in the market could translate to many years of potential growth ahead.
Finally, it’s worth considering the possibility that Butterfly could be a decent acquisition target for larger, better-capitalized medical technology companies. With a market cap of just over half a billion dollars, the company could be a good one for a larger business to scoop up to generate synergistic growth within a larger medtech portfolio.
So, while BFLY is still fairly risky, it may be an attractive candidate among small-cap stocks. Revenue growth, in particular, shows that it has real promise as an investment. Investors who decide to take a chance on Butterfly Network may have to wait a while to see the company deliver returns for them, but there seems to be at least a decent amount of long-term potential in the business.
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.
