Stock Analysis
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- Medical Equipment
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- NasdaqGS:ARAY
The Return Trends At Accuray (NASDAQ:ARAY) Look Promising
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Accuray (NASDAQ:ARAY) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Accuray is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.008 = US$2.3m ÷ (US$469m - US$185m) (Based on the trailing twelve months to December 2022).
Thus, Accuray has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 10.0%.
View our latest analysis for Accuray
Above you can see how the current ROCE for Accuray compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Accuray here for free.
What Does the ROCE Trend For Accuray Tell Us?
We're delighted to see that Accuray is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.8% on its capital. Not only that, but the company is utilizing 37% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
In Conclusion...
Overall, Accuray gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 49% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
If you'd like to know more about Accuray, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
What are the risks and opportunities for Accuray?
Accuray Incorporated designs, develops, manufactures, and sells radiosurgery and radiation therapy systems for the treatment of tumors in the Americas, Europe, the Middle East, India, Africa, Japan, China, and rest of the Asia Pacific region.
Rewards
Earnings are forecast to grow 114.48% per year
Earnings have grown 30.3% per year over the past 5 years
Risks
Has less than 1 year of cash runway
Shareholders have been diluted in the past year
Further research on
Accuray
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NasdaqGS:ARAY
Accuray
Accuray Incorporated designs, develops, manufactures, and sells radiosurgery and radiation therapy systems for the treatment of tumors in the Americas, Europe, the Middle East, India, Africa, Japan, China, and rest of the Asia Pacific region.
Fair value with moderate growth potential.
