What happened

Shares of healthcare equipment company Butterfly Network (NYSE:BFLY) were down 15.5% in September, according to data from S&P Global Market Intelligence. There was no major news or earnings announcements from the company, so it looks like this stock has gotten caught up in recent market volatility.

So what

Butterfly Network is a healthcare company trying to democratize medical imaging. With its Butterfly iQ+ system, patients are able to give ultrasound exams to themselves at home, which clinicians and doctors can interpret remotely. The company believes this is a breakthrough within healthcare imaging, helping patients get faster and better outcomes while making it easier for doctors to manage their work.

A technician showing a patient their ultrasound.

Image source: Getty Images.

However, even if Butterfly has a better product than legacy ultrasound systems, it will take a while to get its product adopted due to the high amount of regulation in the healthcare industry. It will also take training from licensed doctors, which is why the company is trying to get medical schools to start using the Butterfly iQ+ system with their students. So far, over 100 medical schools are using the Butterfly iQ+ to teach their students. 

With the company in such an early stage, and with no history of earnings to put a floor on the stock, Butterfly is highly susceptible to volatility, and shareholders should be ready for that. With IPO stocks like Butterfly underperforming the S&P 500 by around 5% in the past month, which itself had a tough September, it is no surprise that Butterfly is down so much.

Now what

With a market cap of approximately $2 billion and guidance for $76 million to $80 million in 2021 revenue, Butterfly stock trades at a price-to-sales ratio of approximately 25.6. With this expensive P/S, investors need to expect Butterfly to grow its revenue (and eventually profits) to much higher levels within a few years. If that can happen, the stock will likely be a good investment over the long term. If not, then the stock may fall much lower than where it is today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.