Shares of ViewRay (NASDAQ:VRAY), a medical equipment provider that focuses on radiation therapy, rose 16% in early morning trading on Monday on higher-than-normal volume. There wasn't a single press release, Securities and Exchange Commission filing, or analyst upgrade released today that can help explain the move. The gains might be attributable to short-covering after Friday's horrific decline, or buying from investors who see value in the share price today.
ViewRay's stock was cut in half last week after the company reported weak second-quarter results and slashed its full-year guidance. Management also announced that its CFO was looking for an exit, which doesn't exactly inspire long-term confidence.
More than 22 million shares of ViewRay's stock were sold short as of July 31, so short-sellers earned a tidy profit from the stock's huge fall. It's possible that today's double-digit recovery is traceable to profit-taking by the shorts, who have to buy the shares on the open market in order to exit their position.
Another possibility is that some investors still believe in the viability of the business and think that the stock is a steal at today's prices. Analysts at Jefferies, Northland Securities, and B. Riley FBR all came to ViewRay's defense after the huge drop and issued price targets that all imply huge upside from today's price.
Regardless of the underlying cause, shares are on the upswing today.
ViewRay is now under tremendous pressure to get its sales trajectory back on track. That won't be easy since its MRIdian Linac System costs several million dollars and is likely to be very hard to sell, but the company doesn't really have any other options. Its cash balance of $122 million won't last long, since the business is producing a quarterly net loss of about $31 million. Management is going to have to raise additional funds at some point, and it will be extremely painful to do so at today's depressed prices.
ViewRay might be a steal today, but I continue to believe that this stock is too risky to touch.