Why Accuray Shares Were Sliced

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of medical device maker Accuray (NASDAQ: ARAY  ) fell as much as 11% after reporting its second-quarter earnings results and announcing a debt offering. 

So what: The bar was already set low for the maker of the CyberKnife and TomoTherapy devices when it warned in early January that product sales weren't going to be anywhere near what Wall Street expected. For the second quarter, Accuray delivered a 27% drop in sales to $77.8 million and a loss per share of $0.30, which was significantly wider than last year. Both estimates did beat its already reduced forecast from early January, but its full-year sales projection of $320 million to $330 million is still below the Street's $338.4 million consensus figure. Furthermore, Accuray announced that it would be offering $75 million in debt, due in 2018. Although terms such as interest rate haven't been set yet, it's disconcerting to see a company unable to turn a profit going deeper into debt.

Now what: We've got product sales slumping, losses are widening, debt is rising, a restructuring is under way, and estimates are consistently coming in below Wall Street's expectations. We have ourselves a red flag here, folks! On paper, Accuray's CyberKnife system should be a hit. The device provides image-guided robotic radiosurgery to patients with solid tumors, and this is a market only expected to increase in size as the population ages. But, I've said it before, and I'll say it again, wait until Accuray is consistently profitable before jumping aboard this moving vehicle!

Craving more input? Start by adding Accuray to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in biotech and medical device makers like Accuray, the best investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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