Here's Why You Should Hold Accuray Stock in Your Portfolio for Now

Accuray (ARAY) reported Q3 revenue of $113.2M, a 12% year-over-year increase, driven by strong global demand, particularly for its CyberKnife System which saw 50% revenue growth. While Q3 results beat estimates and the company maintains a healthy backlog of $452 million, Accuray anticipates a $10-15 million revenue hit in Q4 due to tariffs impacting shipments to China, contributing to a 20% decrease in gross product orders. Despite maintaining its fiscal 2025 adjusted EBITDA guidance, tariff uncertainties and reduced product orders pose near-term risks to revenue growth and margin stability.

Analysis

Accuray Incorporated (ARAY) reported a 12% year-over-year revenue increase to $113.2 million in its third quarter of fiscal 2025, exceeding estimates, driven by a 50% revenue growth in its CyberKnife System from strong global demand and market approvals in China. Despite these positive Q3 results and a substantial backlog of $452 million, Accuray faces considerable near-term challenges, primarily a projected $10-$15 million Q4 revenue impact from China tariffs. This headwind has contributed to a 20% year-over-year decline in Q3 gross product orders to $71.2 million, a lower book-to-bill ratio of 1.2 (down from 1.8), and a 10% contraction in the order backlog from approximately $503 million. While the company maintains its fiscal 2025 adjusted EBITDA guidance, contingent on offsetting Chinese market losses elsewhere, its stock has underperformed significantly, falling 37.9% year-to-date. Accuray trades at a P/S ratio of 0.3x, well below the industry average of 2.5x, and while fiscal 2025 earnings are estimated at 1 cent per share, Q4 revenues are forecasted by Zacks Consensus Estimate to decline 7.3% year-over-year to $124.5 million.

Key Decisions for Investors

• Investors should closely monitor Accuray's Q4 performance and management's execution on mitigating the $10-$15 million revenue impact from China tariffs, as achieving its maintained fiscal 2025 adjusted EBITDA guidance hinges on this.
• Pay keen attention to trends in gross product orders and the book-to-bill ratio in subsequent quarters, given the recent 20% decline in orders and backlog contraction, to assess the sustainability of demand beyond current headwinds.
• Given the mixed signals of strong Q3 revenue growth overshadowed by tariff impacts and order softness, alongside a low P/S ratio but significant stock underperformance, a cautious stance, consistent with the Zacks Rank #3 (Hold), is warranted until there is greater clarity on China market access and order momentum.