Should you buy or sell Butterfly Network shares after smashing earnings estimates?

On Monday, Butterfly Network Inc. (NYSE:BFLY) shares declined by more than 15% after announcing its most recent quarterly results. The company reported its fiscal third-quarter results before markets opened, beating analyst expectations on earnings. However, revenue for the quarter fell short of estimates despite posting a massive growth.

Butterfly Network posted fiscal third-quarter GAAP earnings per share of -$0.07, beating the consensus for analyst expectations of -$0.25. On the other hand, revenue for the quarter increased by 44.3% from the same quarter a year ago to $14.62 million, missing the average Street forecast by $4.88 million.

The company now expects a full-year 2021 revenue in the range of $60 million to $62 million, reflecting annual growth of 30% to 34%. However, it still expects an adjusted EBITDA loss in the range of $125 million to $135 million for the year.

Is it still risky to buy BFLY shares?

From an investment perspective, Butterfly Network shares trade at a steep price-sales ratio of 51.79, making the stock less attractive to value investors. 

In addition, analysts expect its bottom line to deteriorate by more than 30% next year, thereby putting off potential growth investors.

Therefore, although Butterfly Network shares are down by more than 30% this year, the recent earnings beat does not signal a significant recovery. As a result, it could be still too risky to buy the stock.

Technically, Butterfly Network shares seem to have recently plummeted to complete a downward breakout from a descending channel formation. As a result, the stock has fallen to the oversold conditions of the 14-day RSI.

However, given the company’s steep valuation and the forecast earnings decline, investors could target extended pullbacks at about $6.00 or lower at $4.81, while $8.59 and $9.88 ate crucial resistance levels.

It may not be time to buy the BFLY stock

In summary, although Butterfly Network shares are down more than 60% this year, the healthcare equipment company’s stock still seems significantly overvalued.

Therefore, it may be best to monitor performances over the coming quarters before buying the stock.