Why ViewRay Stock Is Being Mauled Today

What happened

After the company reported second-quarter results and cut guidance, shares of ViewRay (VRAY +0.00%), a medical equipment company that sells the MRIdian Linac system, fell 56% as of 1:37 p.m. EDT on Friday.

So what

Just how bad was the news? 

• Sales rose 84% to $30.2 million. That beat Wall Street's expectation.
• Three new orders were received during the quarter totaling $18.1 million. That was down considerably from the $34.6 million in new orders that were booked in the year-ago period.
• Backlog was $219.3 million. That represents a sequential decline. 
• Cash balance at quarter-end was $122 million.
• Net loss was $30.8 million, or $0.32 per share. That was much worse than the $0.23 net loss per share that traders were expecting.
• CFO Ajay Bansal will be leaving the company effective Sept. 30.

Management also poured cold water on its full-year guidance:

• Revenue is now expected to land between $80 million and $95 million -- down considerably from the prior outlook of $111 million to $124 million.
• Total cash use is expected to be in the range of $80 million to $90 million. That's up considerably from its prior range of $65 million to $75 million.

Between the disappointing orders, declining backlog, surprise CFO departure, and guidance cut, it's no wonder shares are being cut in half today.

Now what

CEO Scott Drake stated: "We are disappointed to take down guidance for the year, but we believe it is prudent given the timing of installations around year-end. We remain focused on the long-term opportunity versus short-term variability, and are confident that we will demonstrate the momentum of our growing pipeline and end-user demand moving forward."

Drake might be right about the long-term potential of the MRIdian cancer-treatment system, but the second-quarter results don't exactly inspire confidence in this company's ability to execute. That's troubling since it is still years away from reaching profitability.

If ViewRay can get its sales engine back on track, then the stock might be a tremendous bargain today. But this is a super-high-risk stock, so I plan to root for the company from the sidelines.