Wednesday, April 6, 2022

A Small Cap Equity holding: Castle Biosciences, Inc. (CSTL, $45.92): “Myriad of Castles!” By: Kendra Preissner, AIM Student at Marquette University


Castle Biosciences, Inc. (CSTL, $45.92): “Myriad of Castles!”

By: Kendra Preissner, AIM Student at Marquette University


Disclosure: The AIM Small-Cap Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.


  • Castle Biosciences, Inc. (NASDAQ: CSTL) provides testing that is able to predict the recurrence of cancers for patients diagnosed with invasive cutaneous melanoma in the United States.
  • The company has expanded its commercial footprint since 2020, with a recent announcement in 2021 of its intent to acquire Myriad’s myPath business.
  • CSTL launched DecisionDx DiffDxMelanoma (DiffDx) and DecisionDxSCC (DxSCC in 2020 helping to further expand their product portfolio
  • The firm indicates that they intend to add 3-5 additional opportunities to their pipeline which could be launched as early as 2025.
  • CSTL is up approximately 7%, as of March 22, since the end of the year 2021, and surprising fourth-quarter results that beat expectations by 41.86%.

Key points: Castle Biosciences remains ‘in-play’. CSTL bought myPath for $32.5 million in cash. Myriad Genetics completed the sale of its subsidiary, Myriad myPath, LLC. Myriad myPath offers the myPath Melanoma test which will be added to Castle’s portfolio and contribute to their sales.

The firm’s product expansion opens new market opportunities. DecisionDx-Melanoma offers the company an opportunity to expand into the invasive melanoma market which has a $540 million total addressable market. DecisionDx-SCC provides an opportunity to expand into gene testing that has a total addressable market of $820 million.

The expansions suggests that the company will be looking to create or acquire both cancer and non-cancer solutions as long, and the products continue to serve customers that are dermatologist, dermatopathologist, or affiliated specialties. The firm has opportunities to expand its products that are upstream, downstream, and parallel to their current product portfolio.

Castle Bioscience is down 30% from one year ago, part of this can be attributed to their attention being diverted by preparations for completing the acquisition and boosting the sales of the new products in their pipeline. In addition, geopolitical risk has created a more volatile environment in the equity markets as well as other macroeconomic factors like inflation. The stock is still up from the end of the 2021 fiscal year.

CSTL is up approximately 7% from the end of the 2021 fiscal year. On February 28th, 2022 the company also announced its 4th quarter results for 2021 beating market expectations by 41.86% with resulting earnings per share of -$0.25 and had forecasted earnings per share of -$0.43.

CSTL also just completed their acquisition of Cernostics. Cernostics provided an esophagus test that adds approximately $1billion to the firm’s estimated U.S total addressable market. This also allows CSTL to expand into the gastrointestinal market.

What has the stock done lately?

Since CSTL completed its acquisition of Cernostics on December 6, 2021, the stock is up almost 15%. The adjusted close price on December 6th was $39.94 and on the 7th it jumped to $43.52 which was a 9% increase within one day. As the new products and acquisitions become more established it will be interesting to see if the combination of CSTL organic and inorganic growth will generate a company that has negative consequences, stable financials, or positioned to be a major growth company.

Past Year Performance: CSTL has declined by 30% in value over the past year, but the stock is still a strong performing, promising equity play. The firm has a current price of $45.92 and street estimates estimate it could rise in value anywhere from $60-$94/share. Acquisitions and product line expansion are driving a lot of the growth and optimistic outlook for the company.

Source: FactSet

My Takeaway

Castle Bioscience has created a growth strategy that combines both organic and inorganic growth to help build up the company’s product offerings and sales. Even though large macroenvironmental factors are playing out currently, which could greatly affect stocks across all industries, CSTL has been able to continue releasing new products and juggling their acquisitions through it all. This current strategy could be contributing to the 30% performance decrease, but once the company starts to fully implement these products the firm could provide large upside in the mid to long term.

Source: FactSet