Is Butterfly Network a Buy Under $6?

Digital health company Butterfly Network, Inc. (BFLY) in Guilford, Conn., develops, manufactures, and commercializes ultrasound imaging solutions in the United States and internationally. The company is principally engaged in offering a medical imaging system, Butterfly iQ. BFLY went public in February 2021 following its merger with an SPAC called Longview Acquisition Corp.

BFLY shares have slumped 71.5% in price over the past year and 22.9% year-to-date to close yesterday’s trading session at $5.16. The stock is trading below its 50-day and 200-day moving averages, indicating a downtrend. However, the stock has been up 14.2% over the past five days; perhaps investors have been encouraged by the company’s recent developments.

Earlier this month, BFLY announced that it received a grant of $5 million from the Bill & Melinda Gates Foundation to improve maternal and fetal health. BFLY will provide 1,000 healthcare workers in Sub-Saharan Africa with Butterfly iQ+, the world’s only handheld, whole-body point-of-care ultrasound probe. Furthermore, a portion of this grant will be used to accelerate the launch of new maternal and fetal health capabilities. The increasing market reach and capability enhancements should help the company create long-term customers for its products.

Click here to checkout our Healthcare Sector Report for 2022

Here is what could shape BFLY’s performance in the near term:

BFLY is in the Red

BFLY’s total revenue increased 21.3% year-over-year to $18.99 million in its fiscal fourth quarter, ended Dec. 31, 2021. However, its gross profit for the quarter was $7.54 million, compared to gross profit of $8.70 million in the same period in the prior year, while its total gross margin was 39.7%, compared to 55.6% in the fourth quarter of 2020. Its loss from operations has increased 104% from its year-ago value to $45.31 million. And the company’s net loss and net loss per share came in at $15.22 million and $0.08, respectively, versus the prior-year quarter’s values of $22.94 million and $3.73.

Bottom Line Expected to Remain Negative

Analysts expect BFLY’s revenue and EPS to come in at $16.77 million and negative $0.26, respectively, in the current quarter ending March 31, 2022. The company’s revenue is expected to increase 27.4% in the next quarter and 33.5% in the current year, ending Dec. 31, 2022. But its EPS is expected to decline by 1,350% and 510.5%, respectively, in the quarter ending June 2022 and the current year. The Street expects the company’s EPS to remain negative at least until this year.

On the other hand, according to BFLY’s financial guidance for this year, the company expects its revenue to be approximately $83 million to $88 million, representing approximately 33% - 41% growth year-over-year. And its net loss is expected to be approximately $225 million - $245 million, while its adjusted EBITDA loss is expected to be approximately $175 million - $195 million.

Bleak Profitability

BFLY’s 49.61% gross profit margin is 11.9% lower than the 56.29% industry average. Its EBITDA margin and levered FCF margin of negative 273.72% and 223.65%, respectively, are substantially lower than the 5.32% and negative 1.55% industry averages.

Furthermore, BFLY’s ROE and ROTC of negative 75.58% and 40.91% compare with the negative 36.70% and 19.06% industry averages.

Patent Infringement Lawsuit

This month, FUJIFILM Sonosite, Inc., a leader in point-of-care ultrasound (POCUS) solutions, filed a patent infringement lawsuit against BFLY in the United States District Court for the District of Delaware, asserting seven patents. Fujifilm Sonosite seeks remedies, including damages related to the alleged infringement described as BFLY’s use, manufacturing, marketing, promotion, and sale of its IQ/IQ+ point of care ultrasound products. “We are proud to have a robust patent portfolio with over 800 patents issued and pending. We are aware of the lawsuit and are prepared to defend against any claims,” a BFLY spokesperson said.

Unfavorable POWR Ratings

BFLY has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Quality, which is consistent with its negative profit margins.

BFLY has an F grade for Stability, which is in sync with its 24-month beta of 1.59.

Of the 167 stocks in the D-rated  Medical - Devices & Equipment industry, BFLY is ranked #151.

Beyond what I have stated above, one can also view BFLY’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Medical - Devices & Equipment industry here.

Bottom Line

The digital disruption seen over the past two years due to the COVID-19 pandemic has created immense growth opportunities for digital healthcare companies. BFLY’s impressive offerings should help the company grow in the long term. However, considering its current financial positioning and negative margins, we think it could be best to avoid the stock now.

How Does Butterfly Network, Inc. (BFLY) Stack Up Against its Peers?

While BFLY has an overall POWR Rating of D, one might want to consider investing in the following Medical - Devices & Equipment stocks with an A (Strong Buy) rating: Fonar Corporation (FONR), Electromed, Inc. (ELMD), and Abbott Laboratories (ABT).

Click here to checkout our Healthcare Sector Report for 2022

BFLY shares rose $0.11 (+2.13%) in premarket trading Tuesday. Year-to-date, BFLY has declined -22.87%, versus a -6.44% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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