Castle Biosciences enters its third-quarter report having done something growth investors rarely tire of: raising its full-year outlook twice in a row, with the second increase larger than the first. The stock has rallied hard since then. The question now is whether the business can keep earning that optimism as its main growth engine, TissueCypher, moves into a tougher phase of tougher comparisons and later-adopting physicians.
Wall Street expects revenue of about $92.0 million, up roughly 10.8% from $83.0 million a year ago, with a loss of $0.38 per share against a $0.02 loss in the year-ago period. On the surface that looks like a step back from the second quarter's $103.5 million. Some retreat is defensible, because management said part of last quarter's TissueCypher pricing benefit would not repeat. The math also works with guidance. Castle lifted its 2026 revenue target to $365 million to $375 million, up from $345 million to $355 million, which itself had been nudged up from the initial $340 million to $350 million. With roughly $187 million booked in the first half, hitting that range requires about $89 million to $94 million per quarter over the back half. A $92 million quarter lands comfortably in the middle. The full-year consensus of $355 million, by contrast, sits below even the low end of the new range, which suggests some forecasts have not caught up and leaves room for estimates to move higher if the third quarter lands well.
The per-share loss estimate deserves context. Management reaffirmed positive adjusted EBITDA for the third quarter, the fourth quarter and the full years 2026 and 2027, so a sizable reported loss would not necessarily contradict that pledge. Still, gross margin is a genuine swing factor. Adjusted gross margin slipped to 76.3% in the second quarter from 79.5% a year earlier, and the company now frames the full year in the low to mid 70s, below its historical high 70s to low 80s. A number that drifts toward the bottom of that band would raise questions about the cost of the newer test portfolio.
Operationally, three threads matter most. First, TissueCypher, which delivered 14,988 reports in the second quarter, up 63%, needs to stay on pace for the raised 50% to 52% annual volume growth outlook. Volume, not price, is the cleaner read this time. Second, the core DecisionDx melanoma test grew only about 3% sequentially last quarter, below its usual seasonal lift, which management attributed to a dermatology sales force splitting time among melanoma, SCC and the Advanced AD test. Another soft melanoma quarter would turn a deliberate trade-off into a lingering concern. Third, Advanced ADTX orders climbed past 1,000 in the second quarter from about 650 in the first, and the test won a unanimous panel vote to crosswalk to a psoriasis code at $36.75. Continued order growth and any progress in commercial payer discussions would show that the new atopic dermatitis franchise is more than a sales distraction. Updates on the expected melanoma FDA clearance and a possible favorable draft coverage decision for the SCC test would add further support.
The expectations backdrop has shifted noticeably. Shares are up about 20% since the last report, outpacing the S&P 500 by nearly 17 percentage points, and at $34.51 they sit well above the 200-day moving average of $28.62. The entire post-earnings trading range, from $27.50 to $37.99, lies above last quarter's high of $27.13, though the stock remains about 9% below its recent peak. Meanwhile, sentiment has swung decidedly bearish, with 81.2% of readings negative versus 23.4% before the prior report, a sign that skepticism has grown even as the price climbed.
Ultimately, the narrative holds if Castle shows that TissueCypher volume can carry the year without help from one-time pricing, that melanoma steadies despite a crowded sales bag, and that margins stay within the reset range. Clearing those hurdles while reiterating or nudging guidance would validate the rally; stumbling on any of them would suggest the easy gains are behind it.