We recently compiled a list of the 12 Best Multibagger Penny Stocks to Buy Now. In this article, we are going to take a look at where Butterfly Network, Inc. (NYSE:BFLY) stands against the other stocks.

Investors in the United States and abroad are girding themselves for a turbulent week amid a looming tariff war. President Trump imposed tariffs on imports from Mexico, China, and Canada on February 1—these are the country’s largest trading partners. Goods crossing the border from Mexico and Canada will attract a 25% duty and 10% for those from China. Washington’s justification for this policy action is that it will address trade imbalances, illegal immigration, and drug trafficking.

The problem is that such policy direction doesn’t often sit well with investors. Soon after the tariff announcement, major stock indexes saw significant drops. The S&P 500 is down 0.5% after registering an impressive run since Trump’s inauguration. The Nasdaq has shaved off 0.28%, while the Dow is down 0.75% from the previous close.

In other words, the tariffs are bad news for the US stock market. Experts, such as Jeremy Siegel, believe that we are likely to see more uncertainty and heightened volatility as a result. “Tariffs are the only negative aspect of Trump’s economic agenda. They can lead to higher prices for consumers and potential disruptions in the supply chain. This creates uncertainty and volatility in the stock market,” he told CNBC’s Closing Bell.

Periods of uncertainty often do not favor small caps, according to BlackRock’s Christopher DiPrimio and Travis Cooke. They write, “As a result of some of this more cyclical sector exposure, the Russell 2000 has lagged the S&P 500, especially during periods of market volatility and increased uncertainty.” This is also evident in the latest drops. The Russell 2000 dropped more than major stock indices in the past few hours after the activation of Trump’s tariffs.

Small-cap companies typically derive a larger portion of their revenue domestically. And when uncertainties arise from events like a tariff war, these companies are insulated from external shocks. As such, the potential for higher earnings will make small-cap stocks increasingly attractive to investors.

That aside, small-cap valuations are now attractive. Small-cap stocks are currently trading at attractive valuations, with price/earnings (P/E) ratios slightly above their long-run average of 16.7 times (excluding companies with negative earnings) but still more than 30% below large-cap indices.

Geoff Dailey and colleagues at BNP Paribas Asset Management offer an apt summary of the multibagger potential of US small caps. They write that “The outlook for US small-capitalization stocks is better now than it has been for several years. The main reasons include the US interest rate cutting cycle (small caps tend to benefit), currently attractive valuations, the reshoring trend, and (expected) merger & acquisition activity.”

Beyond these factors, the current market environment offers unique opportunities for penny stock investors. Corporate earnings are showing resilience despite economic headwinds, with companies in the Russell 2000 reporting better-than-expected results. Recent data shows that approximately 58.6% of the companies in the Russell 2000 have reported earnings above analyst expectations for Q4 2024. Besides that, the outlook for 2025 suggests that M&A activity in the small-cap space will pick up momentum. This combination creates a compelling setup for small cap stock investments in 2025.

Our Methodology

For this article, we used a stock screener to first identify stocks priced under $5 that have posted huge gains over the past year (at least 100%). From the obtained dataset, we selected penny stocks with the highest percentage gains in stock performance over the past year (as of February 5). The list is ranked based on stock performance, from lowest to highest.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Butterfly Network, Inc. (NYSE:BFLY)

Stock Performance Over Last Year: 330.68%

Number of Hedge Fund Holders: 15

Share Price as of February 5: $4.50

Butterfly Network, Inc. (NYSE:BFLY) is a digital health company revolutionizing medical imaging. Its flagship product is the Butterfly iQ3, a portable, semiconductor-based ultrasound technology. This represents the third generation of the company’s innovative handheld ultrasound system.

The company’s preliminary Q4 2024 revenue grew approximately 35% year over year. This momentum is likely to be sustained, especially after Butterfly Network and its associates recently revealed that point-of-care ultrasound (POCUS) reduces hospital stays for patients. The efficiency gains translate to substantial cost savings, with some patients experiencing up to 50% reduction in healthcare costs. As healthcare systems increasingly adopt POCUS to improve patient outcomes and reduce costs, Butterfly Network is poised to benefit from this growing market demand.

Furthermore, the company has moved to strengthen its financial position. It recently secured $75.6 million through a public offering of 24 million shares at $3.15 per share. This capital injection will accelerate product development and commercialization efforts. The timing is particularly strategic as Butterfly’s iQ3 device just earned Best Medical Technology at the 2024 Prix Galien USA Awards, further validating its innovative approach to healthcare technology.

Overall BFLY ranks 3rd on our list of the best multibagger penny stocks to buy now. While we acknowledge the potential of BFLY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BFLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

Disclosure: None. This article is originally published at Insider Monkey.