I am bullish on Accuray (ARAY) because Wall Street’s bullishness on the stock, and its strong growth momentum, could combine with its valuation multiples that indicate that the stock is trading at a discount to historical averages.
Accuray is a radiation therapy company specializing in the development, manufacture, sale, and support of market-changing solutions that advance patient care through radiation treatments. (See Analysts’ Top Stocks on TipRanks)
Its solutions improve the accuracy, flexibility, and control in such treatments, leading to fewer and shorter sessions than regular treatments, thereby enabling patients to return to their regular lives more quickly.
Strengths
Accuray’s strength lies in its vision to expand the power of radiation therapy to improve patient lives.
With approximately 1,000 employees worldwide, Accuray has thus far treated over 3 million patients in Fiscal Year 2021. It utilizes proprietary technology to deliver superior radiation treatments than its competitors.
Its systems include: CyberKnife S7, TomoTherapy, and Synchrony. CyberKnife S7 delivers unique stereotactic radiosurgery (SRS), stereotactic body radiotherapy (SBRT), and hypofractionated radiotherapy treatments.
TomoTherapy combines integrated CT imaging with a new helical treatment delivery platform that targets tumors, while minimizing the impact on healthy tissues.
Synchrony tracks and treats tumors with the smallest field in real-time through motion detection and superior kVCT imaging.
Recent Results
Accuray has had a strong fiscal 2021 thus far, enjoying growth catalysts such as several successful global product launches, including CyberKnife S7 and ClearRT worldwide.
Furthermore, the business has made strong progress in China, generating $65 million in system revenue, an increase of 195% year-over-year. Accuray has also experienced strong growth in Japan, enabling it to gain the No. 2 market share position in the country.
On top of that, Accuray has installed 76 new systems this year, while receiving 44 orders for ClearRT.
Additionally, Accuray’s research and development pipeline experienced accelerated investments, contributing to its strongest product portfolio and pipeline in its history.
Valuation Metrics
Accuray’s stock looks attractively priced right now as its EV/EBITDA ratio and EV/revenue ratio each indicate that the stock is trading near or below its historical average.
The EV/EBITDA ratio is currently 13.1x compared to its five-year average of 14.9x, and the EV/Revenue ratio is currently 1x compared to its five-year average of 1.1x.
Given that the company is expected to continue growing revenue at a mid-single digit CAGR for the foreseeable future, the stock is not extremely cheap, but does not look particularly expensive either.
Wall Street’s Take
From Wall Street analysts, Accuray earns a Strong Buy analyst consensus based on four unanimous Buys in the past three months. Additionally, the average Accuray price target of $8.50 puts the upside potential at 114.7%.
Summary and Conclusions
Accuray is a high-potential company with a fascinating and important mission to make people’s lives better with proprietary technology.
The company is expected to continue growing at a good pace thanks to its strong growth momentum in large Asian markets like China and Japan.
Furthermore, its stock looks attractively priced here, as it trades at a discount to its historical valuation multiples, and Wall Street analysts are unanimously bullish on the stock.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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