Varex Imaging Shares Soar: Can the Rally Continue?

The medical imaging specialist Varex Imaging is currently experiencing a breathtaking surge in its share price. In a single month, the stock has advanced by more than 50%, a performance that has captured the attention of the investment community. This dramatic uptrend prompts a critical question: what is fueling this impressive run, and is a pullback now due?

Strong Technical Indicators Support the Advance

The stock’s impressive comeback began from its low on August 5th, racking up gains exceeding 66% in less than three weeks. This bullish momentum is reflected in key technical indicators. The share price is trading well above its major moving averages, and the MACD indicator is also flashing a buy signal. However, the Relative Strength Index (RSI) reading of over 96 suggests the stock is in extremely overbought territory, which often precedes a period of consolidation.

Stellar Quarterly Earnings Spark the Rally

The catalyst for this powerful move was a stellar earnings report on August 7th. Varex’s third-quarter results significantly outperformed market expectations. The company posted adjusted earnings of $0.18 per share, a substantial $0.14 beat over forecasts. Revenue reached $203 million, surpassing estimates by $12.68 million. The company also demonstrated improved operational efficiency, with its gross margin expanding by 100 basis points to 34%. A notable highlight was the robust recovery in its Chinese operations, which now contribute 15% of total revenue.

Should investors sell immediately? Or is it worth buying Varex Imaging?

Underlying Risks Demand Investor Caution

Despite the celebratory mood, potential risks remain for investors. The equity is characterized by extreme volatility, measured at over 80%, and carries a “very risky” classification. A recent positive development was the repayment of a $200 million convertible note, which has strengthened the balance sheet. Nonetheless, with net debt standing at $217 million, the company’s financial leverage remains a point of consideration.

The central question for the market is whether this momentum can be sustained. Management’s guidance for the fourth quarter projects revenue in the range of $210 million to $230 million, with adjusted earnings anticipated between $0.10 and $0.30 per share. Market analysts maintain an optimistic outlook, with an average price target of $19.50 suggesting further potential upside. However, following such a rapid appreciation, the shares will likely need a breather before attempting their next climb.