Do You Believe in the Growth Potential of Establishment Labs Holdings (ESTA)?

Baron Funds, an investment management company, released its “Baron Discovery Fund” fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. The Fund focuses on long-term, competitively positioned companies that are well-managed and have significant potential in untapped markets. The letter also addressed the advancements in AI and how humans define themselves in the changing landscape. In Q4, the fund generated a return of 0.19% (Institutional Shares), underperforming the Russell 2000 Growth Index by 1.03 percentage points. Over the entire year, the fund posted a return of 10.96%, while the Index returned 13.01%. The outperformance of low-quality and short-term price momentum-oriented stocks affected the Fund’s focus on long-term valuation metrics. The top 10 holdings comprised 26.7% of the Fund’s net assets, with cash making up 3.3%. The Fund maintains strong optimism and expects a high-growth, low-inflation environment in 2026. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Baron Discovery Fund highlighted Establishment Labs Holdings Inc. (NASDAQ:ESTA) as one of the leading contributors. Establishment Labs Holdings Inc. (NASDAQ:ESTA) is a medical device company focused on breast implants and other reconstructive plastic surgeries. On February 2, 2026, Establishment Labs Holdings Inc. (NASDAQ:ESTA) stock closed at $71.25 per share. Establishment Labs Holdings Inc. (NASDAQ:ESTA) delivered a 2.78% return in the past month, and its shares are up 131.90% over the past twelve months. Establishment Labs Holdings Inc. (NASDAQ:ESTA) has a market capitalization of $2.07 billion.

Baron Discovery Fund stated the following regarding Establishment Labs Holdings Inc. (NASDAQ:ESTA) in its fourth quarter 2025 investor letter:

"Shares of Establishment Labs Holdings Inc. (NASDAQ:ESTA) contributed to performance. Establishment Labs sells next-generation Motiva breast implants that have meaningfully lower safety risks and aesthetic benefits compared to competitors. In particular, Motiva implants cause significantly less capsular contracture (where surrounding tissue squeezes the implant) and no known cancer risks. Motiva also comes in a more natural Ergonomix shape with a natural-feeling softer fill as well as potentially a smaller implant scar. The company's implants have captured significant share in many international markets, and the U.S. launch is now underway and progressing well, having already captured about 20% of U.S. aesthetic breast augmentation market. Reconstruction approval (for cancer survivors) should occur in 2026 as well. We believe Establishment will capture substantial plurality share in the U.S. over the next few years, which will drive significant revenue growth, profitability (it will be free cash flow positive in 2026), and value creation."

Establishment Labs Holdings Inc. (NASDAQ:ESTA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 29 hedge fund portfolios held Establishment Labs Holdings Inc. (NASDAQ:ESTA) at the end of the third quarter, up from 28 in the previous quarter. While we acknowledge the potential of Establishment Labs Holdings Inc. (NASDAQ:ESTA) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Establishment Labs Holdings Inc. (NASDAQ:ESTA) and shared a list of hottest small cap stocks to invest in. In addition, please check out our hedge fund investor letters Q4 2025 page for more investor letters from hedge funds and other leading investors.

READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.

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