Like most investors, I’ve made a few mistakes over the years. I’m talking about the times I’ve bought a stock and it’s totally tanked. Well, after its 60% drop this year, Butterfly Network (NYSE: BFLY) stock is definitely a massive loser for me. In fact, it’s now my worst performing investment to date.
What’s gone wrong here?
SPAC mania
In 2020, there emerged a trend in the US where companies started going public via something called a ‘special purpose acquisition company‘ (SPAC). This is a company with a pile of money that it uses to buy or merge with another company in order to take it public.
Many of these companies were wildly overvalued a couple of years ago. And most of them have lost a substantial amount of their market value since. Butterfly Network went public through a SPAC in February 2021. That is around the time when I invested in the stock, at $19.
But rather than flying upwards, Butterfly Network stock has since had its wings brutally clipped. Today, less than two years later, the share price is $3.70. Its market cap has fallen from over $3bn to just $677m.
All in all, I’m nursing a painful 80% loss.
Unfulfilled promise
Butterfly Network is a health-tech company whose disruptive technology turns a smartphone into an ultrasound machine. Instead of traditional hardware, the company has pioneered a way to put ultrasound on a semiconductor chip.
The firm’s medical imaging devices are handheld and portable. And the mission is to make them as commonplace as stethoscopes for health professionals around the world.
Butterfly Network’s app allows clinicians to capture images, access patient information, and send scans. This software side of the business has much higher margins than the imaging hardware side.
The company reported revenue of $62.2m for the full year 2021, up 35% on 2020. However, prior to going public, Butterfly Network had originally guided for full-year 2022 revenue to be $138m. It has become obvious that the firm is going to fall well short of that target this year.
Meanwhile, it expects to lose between $145 million and $155 million for the full year. So basically, we’re looking at a company that overpromised but has so far under-delivered.
Stick or twist?
Peter Lynch once said: “In [investing], if you’re good, you’re right six times out of ten. But the times you’re right, it overcomes your mistakes”.
I was reminded of this quote today when I looked at my portfolio to check how much I’m actually down on this stock. That’s because directly above Butterfly Network (alphabetically) is my holding in Axon Enterprise. And that stock is up over nearly 300% for me, even after the overall stock market decline this year.
The gains from that one investment completely dwarf my losses in Butterfly Network shares. As Peter Lynch pointed out, the winners compensate for the losers, and then some.
Anyway, I’m not going to invest more money in Butterfly Network stock. The company has not grown as quickly as I’d hoped it would. And I overpaid for the stock, which I’m paying the price for now.
But I’m still not going to sell my shares just yet. Maybe they’ll take off one day and I’ll be happy I was patient.
