Butterfly Network (BFLY) is a digital health company that develops, manufactures, and commercializes ultrasound imaging solutions in the United States and internationally. The company provides Butterfly iQ, a handheld and single-probe whole body ultrasound system; Butterfly iQ+, a point-of-care ultrasound imaging device; and Butterfly Blueprint, a system-wide ultrasound platform with Compass software.

In addition, BFLY offers cloud-based software solutions to healthcare systems, in-app educational tutorials, tele-guidance, and formal education programs through its Butterfly Academy software and clinical support and services.

BFLY has plunged 19% in price year-to-date and 53.8% over the past year to close the last trading session at $5.55. The stock is currently trading 59.1% below its 52-week high of $13.56, which it hit on September 7, 2021.

Renowned investor Cathie Wood has recently loaded up shares of BFLY to take advantage of its price dip. Yesterday, Wood bought over 105,000 shares of BLFY. The stock has 6.1% ARK ownership.

The digital health company reported deteriorating financials. For the fiscal 2022 second quarter ended June 30, 2022, BFLY’s revenue increased 16.4% year-over-year to $19.22 million, but the company’s loss from operations widened 32.1% from the year-ago value to $48.46 million.

Furthermore, BFLY’s adjusted EBITDA loss stood at $37.82 million, compared to a $28.49 million loss in the prior-year quarter. The company’s net loss and loss per common share attributable to Class A and B common stockholders came in at $35.80 million and $0.18, worsening significantly from the year-ago quarter.

It is also concerning that the company’s cash burn is increasing. As of June 30, 2022, BFLY’s cash and cash equivalents amounted to $310.80 million, versus $422.84 million as of December 31, 2022.

On the other hand, on March 9, Bothell, Washington-based Fujifilm Sonosite filed a patent infringement lawsuit against BFLY. The company claimed that the rival ultrasound maker violated seven patents tied to handheld, point-of-care ultrasound. In defense, on August 8, BFLY filed a motion to dismiss claims and specific patents from a complaint for a patent infringement lawsuit.

The digital health company believes the lawsuit lacks merit and is meant to distract from Fujifilm’s failure to innovate and keep pace with BFLY’s clinical assessment platform.

Here is what I think could influence BFLY’s performance in the upcoming months:

Weak Growth Prospects

Analysts expect revenues to increase 46.4% year-over-year to $21.40 million in the fiscal 2022 third quarter (ending September 2022). However, the consensus loss per share estimate for the ongoing quarter is expected to come at $0.24, worsening 6.2% from the same period in 2021. The company has missed the consensus EPS estimates in each of the trailing four quarters, which is disappointing.

Furthermore, the company’s loss per share estimate for the fiscal year 2022 (ending December 2022) is expected to come in at $0.89. Also, analysts expect the company’s loss per share for the next year to widen 4.5% year-over-year to $0.93.

Low Profitability

In terms of trailing-12-month gross profit margin, BFLY’s 52.46% is 4.1% lower than the 54.71% industry average. And its trailing-12-month EBITDA margin of negative 269.06% compares to the 3.67% industry average. Likewise, the stock’s trailing-12-month net income margin of negative 159.45% compares to the industry average of negative 2.62%.

Furthermore, BFLY’s trailing-12-month asset turnover ratio of 0.12% is 64.8% lower than the 0.34% industry average.

Frothy Valuation

In terms of trailing-12-month EV/Sales, BFLY’s 12.41x is 200.5% higher than the 4.13x industry average. Its 16.42x trailing-12-month Price/Sales is 256.2% higher than the 4.61x industry average. Likewise, the stock’s 2.91x trailing-12-month Price/Book is 29.7% higher than the 2.24x industry average.

POWR Ratings Reflect Bleak Prospects

BFLY’s overall F rating translates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

BFLY has a grade of F for Stability. The stock’s relatively high beta of 2.01 justifies the Stability grade. In addition, it has a D grade for Quality, consistent with its lower-than-industry profitability multiples.

BFLY is ranked #139 out of 145 stocks in the D-rated Medical-Devices & Equipment industry.

Beyond what I have stated above, we have also given BFLY grades for Sentiment, Growth, Value, and Momentum. Get all BFLY ratings here.

Bottom Line

BFLY’s top-line growth didn’t translate into bottom-line improvement in its last quarter. Moreover, the company estimated its full-year adjusted EBITDA loss to come between $145 million and $155 million. Also, analysts expect the company’s earnings to decline significantly in fiscal 2022 and 2023.

Given BFLY’s disappointing financials, bleak growth prospects, low profitability, higher-than-industry valuation, and high volatility, we think it may not be wise to follow Cathie Wood’s action.

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

BFLY has an overall POWR Rating of F. One could also check out these other stocks within the Medical-Devices & Equipment industry with an A (Strong Buy) rating: Fonar Corporation (FONR) and Electromed, Inc. (ELMD), and Utah Medical Products, Inc. (UTMD).

BFLY shares rose $0.31 (+5.59%) in premarket trading Wednesday. Year-to-date, BFLY has declined -17.04%, versus a -15.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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