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On Tuesday, BTIG analyst Sung Ji Nam adjusted the price target for Castle Biosciences (NASDAQ:CSTL) shares to $32 from the previous $40, while continuing to recommend a Buy rating for the stock. According to InvestingPro data, analyst targets for CSTL currently range from $30 to $44, with the stock trading at $18.75. Despite Castle Biosciences posting a first-quarter performance that exceeded expectations and raised forecasts, its shares dropped by 9%. The company reported a 21% year-over-year increase in revenue for the first quarter, driven by a 17% growth in volume and achieving 81% adjusted gross margins.
Castle Biosciences recently announced the acquisition of Previse, a privately-held company specializing in commercial-stage GI diagnostics testing, which offers a test akin to Castle’s TissueCypher. The acquisition is not expected to expand Castle’s total addressable market (TAM), and the test has a lower reimbursement rate compared to TissueCypher. Analysts believe the acquisition might be a strategic move to mitigate competition risks. InvestingPro analysis shows Castle maintains strong financial health with a "GREAT" overall score and impressive liquidity, maintaining a current ratio of 7.29.
The deal, which is anticipated to finalize in the upcoming weeks, will also provide Castle with a non-endoscopic sponge technology. This technology is for a pipeline screening test for esophageal cancer, bearing resemblance to EsoGuard, a test marketed by Lucid (NASDAQ:LCID) Diagnostics. However, details regarding the data and launch timelines for any test remain unspecified.
The timing of this acquisition aligns with two significant developments: Castle’s discontinuation of its IDGenetix test and the recent cessation of CMS coverage for its SCC test. Despite these challenges, BTIG maintains a positive outlook, suggesting that Castle could regain reimbursement for its SCC test, potentially through reconsideration requests.
In light of the company’s current valuation, Castle Biosciences’ shares are trading at just 1.0 times BTIG’s 2026 revenue estimate of $304 million. This is considerably lower than the 4x revenue multiple seen with its small-to-mid-size (SMID) clinical diagnostic peers, reinforcing the firm’s continued endorsement of the stock with a Buy rating, albeit with a reduced price target. InvestingPro analysis indicates the stock is currently undervalued, with additional metrics and insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of Castle Biosciences and 1,400+ other top US stocks.
In other recent news, Castle Biosciences reported a significant revenue increase for the first quarter of 2025, reaching $88 million, which surpassed analysts’ expectations and marked a 21% year-over-year growth. Despite this positive revenue performance, the company experienced a net loss of $25.8 million and missed earnings per share (EPS) expectations with a reported EPS of -$0.20 against the forecasted -$0.06. The company remains optimistic, however, as it raised its 2025 revenue guidance to a range of $287-$297 million. As part of its growth strategy, Castle Biosciences announced the acquisition of ProVise to expand its gastrointestinal health offerings, although the immediate revenue impact is not anticipated. Analyst firms have yet to issue upgrades or downgrades following these developments. Castle Biosciences’ continued focus on expanding its product portfolio and market presence is expected to drive future growth, with particular emphasis on its DecisionDx Melanoma test and TissueCypher product line. The company also faces challenges such as Medicare reimbursement issues for certain tests, which could affect future revenue streams.
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