Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Accuray Goes Under the CyberKnife

By

Good news gets you a yawn, no news gets you a beating and bad news gets you decapitated...

PrintPRINT
The afternoon before the December MV "Festivus" I was debating Accuray's (ARAY) future with Minyan Terry, and while telling him I liked the name and was long it, I also worried out loud about the company "Shared Ownership Program" (SOP). Here is how that works, straight from ARAY's 10-K filing:

Shared Ownership Programs Revenue
"As of June 30, 2007, our shared ownership programs involved U.S. sites only. We recognize revenue monthly from our shared ownership programs that consists of a minimum monthly payment. We also recognize usage-based revenue in excess of the monthly minimum based on usage reports from our customers... In limited cases, we receive nonrefundable upfront payments from shared ownership program customers which are treated as deferred revenue and recognized over the term of the contract.

The CyberKnife system shared ownership systems are recorded within property and equipment and are depreciated over their estimated life of ten years. Depreciation and warranty expense attributable to shared ownership systems are recorded within cost of shared ownership programs as they are incurred
."

My thinking was that to the extent that a CyberKnife is made available to a customer without having to buy it outright, the SOP would have a high potential to cut into near term revenues, while smoothing out future revenues. That's not unlike software companies shifting from a license to a subscription model, and in the short run those transitions never made for happy shareholders.

I don't know if or how much the SOP program had to do with last night's miss, and probably won't know until the 10-Q is filed, but I can't shake the feeling that it did play a role.

As far as the "official" reason for the miss - tighter credit markets - I would tend to describe it more as an "excuse" than a "reason". The company guided the year down by a ton, and if you can't sell your product it makes little difference why. However, as a mitigating factor, I would note this: CyberKnives are multi-million dollar gadgets, and the number of units ARAY sells each quarter is relatively small. Therefore, when investing in a company with this kind of business one must allow for the proverbial "lumpiness" in sales, and one would hope that the stock reaction to positive or negative surprises would take into account these sales "issues".

Bottom line: I stayed long ARAY despite my SOP concerns because: (i) it is one of a number of med-tech stocks I am long as a basket, which includes Hologix (HOLX), Sectra AB (SECTB), Elekta AB (EKTAB), Analogic (ALOG), and until recently Varian (VAR). In any basket it is nearly inevitable to have winners and losers, but the focus for me remains on the basket as a whole. And (ii) if I gotta be long something, this is a group I want to own.

In hindsight being long ARAY was obviously wrong, and even though I agree with Prof. Udall that ARAY's stock with a $10 handle "looks" cheap, I am not nearly as sanguine about adding to it, not unless I can get a really good and believable answer as to what happened this quarter.

I will also offer a couple of general thoughts relevant to ARAY as well as to other recent blowups: in my humble opinion, the type of moves we have seen in Apple (AAPL), VMWare (VMW), Amazon (AMZN), Cypress Semi (CY) / Sunpower (SPWR),and many other names taken to the woodshed are a textbook reflection of how stocks behave in bear markets: i.e. good news gets you a yawn, no news gets you a beating and bad news gets you decapitated. So all my positions are sized accordingly, or protected by puts, with the idea that between this kind of risk management, and my overall short exposure, the P/L will ultimately work itself out. Furthermore, during bear markets blown-up small caps have a very difficult time putting together meaningful snapbacks, as the disgust ARAY longs feel right now tends to lead to more selling of any uptick.


GET THESE INSIGHTS AND MORE IN REAL-TIME. CALL 212-991-9357 FOR A 14-DAY FREE TRIAL TO THE BUZZ & BANTER OR CLICK BELOW.
Position in VMW, AMZN, CY, SPWR, ALOG, EKTAB, SECTB, HOLX, ARAY
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE