Castle Biosciences Stock: An Outperform Candidate

© Reuters. Castle Biosciences Stock: An Outperform Candidate

Shares of Castle Biosciences (NASDAQ:CSTL), have dropped 3% over the past three months.

However, the stock is still up 16.5% over the past six months, slightly better than the overall market.

As a result of effective growth initiatives, shares should continue to trade higher and higher. Thus, I am bullish on this stock. (See CSTL stock charts on TipRanks)

Based in Friendswood, Texas, Castle Biosciences is a commercial-stage provider of dermatologic diagnostic and prognostic solutions that help physicians recognize skin cancer, and make precise predictions about the progression and outcome of the disease.

The company's tests currently target cutaneous melanoma and squamous cell carcinoma, and are also designed for suspicious pigmented lesions and uveal melanoma.

Q2 Earnings

Thanks to a record quarterly volume of all gene expression profile tests sold, total revenue grew more than 79% year-over-year to approximately $22.8 million in the second quarter of 2021, beating analysts' projections by nearly $4 million.

The increase in the total turnover didn't have enough counterbalance power on higher operating expenses the company had to sustain to increase the size of its commercial team, and to fund higher spending on research and development.

Furthermore, the company acquired a skin cancer test for melanocytic lesions that are difficult to diagnose. Thus, Castle Biosciences incurred a net loss of $0.35 per share, which was worse than the net loss of $0.08 per share for the same period in 2020. Nevertheless, it beat the consensus average by $0.02.

Recent Achievements, Near-Term Perspectives

Two recent events have enhanced the value of the company's portfolio.

First, the New York State Department of Health's approval for the Castle's test for melanocytic lesions that are difficult to diagnose.

Second, the awarding of a five-year U.S. federal contract for providing the Veterans Health Administration with tests for the prognosis of cutaneous melanoma metastasis, as well as the diagnosis of recurrence and sentinel lymph node positivity.

As a result of its several growth initiatives, Castle expects further uptrends in the volume of tests supplied, and ongoing improvements in market penetration rates.

Looking ahead to full-year 2021, the company guides revenue in the $89 million to $93 million range, representing a 42% to 48.5% upside from full 2020 sales, while analysts' projections are at $91 million to $93 million.

Wall Street’s Take

In the past three months, three Wall Street analysts have issued a 12-month price target for Castle Biosciences. The average Castle Biosciences price target is $84.33, implying 18.9% upside. The analyst rating consensus is a Strong Buy rating, based on three Buys.

Summary

If total revenue keeps on growing, the market value of this stock should follow, making new highs.

As soon as the bottom line switches to a net profit, it will be of further help to the share price. In essence, it is poised to outperform the market.

Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.

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