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We came across a bullish thesis on FONAR Corporation (FONR) on Substack by Mark Perkins. In this article, we will summarize the bulls’ thesis on FONR. FONAR Corporation (FONR)'s share was trading at $13.98 as of March 17th. FONR’s trailing P/E was 12.25 according to Yahoo Finance.
An MRI scanner being used to diagnose primary mitochondrial myopathies in a clinical setting.
Fonar Corporation (FONR), based in Melville, New York, has a long history of innovation in medical imaging. As the creator of the world’s first full-body MRI scanner in 1977, Fonar commercialized the technology in 1980 and went public in 1981. The company remains a niche player in the MRI industry, specializing in its unique “Upright MRI,” which allows patients to be scanned in various positions, including standing, sitting, and bending. This makes it particularly valuable for diagnosing conditions that only appear when the patient is in a weight-bearing position. Additionally, the Upright MRI is an excellent alternative for patients with claustrophobia, setting it apart from conventional recumbent MRI scanners.
Fonar’s business model is driven by both MRI sales and servicing, with a significant portion of revenue coming from its Health Management Company of America (HMCA) subsidiary. HMCA manages MRI centers in New York and Florida, operating 43 scanners across 28 locations. This management service provides stable, recurring cash flow, making Fonar a more predictable investment compared to many other deep-value stocks. While the company’s revenue growth has been steady, its financials reveal both strengths and challenges. In fiscal 2024, HMCA-generated revenue reached $94.6 million, up from $90.4 million in 2023. Overall, Fonar’s trailing twelve-month revenue stands at $101 million, growing slowly but consistently. The MRI industry itself is expected to expand at a 5%-6% CAGR, increasing from $7 billion in 2024 to around $13 billion by 2034. Fonar competes with major players like Siemens, GE, Philips, and Canon, but its mid-field MRI with 0.6 Tesla remains a unique alternative to traditional high-field MRI systems.
Fonar’s financials highlight a strong balance sheet and consistent free cash flow generation. Over the past five years, shareholder equity has grown at a compounded annual rate of 3.2%, reflecting a stable business model. The company has also maintained a healthy cash position, with free cash flow averaging $12.2 million annually over the last five years. Fiscal 2024 saw free cash flow increase to $13 million, a notable improvement from the $10 million recorded in 2022 and 2023. At its current valuation, the stock trades at 11 times trailing twelve-month free cash flow, offering an 8.9% free cash flow yield, with a similar valuation on an earnings basis at 12 times trailing earnings per share.