FONAR Corporation’s (FONR Quick QuoteFONR - Free Report) investors have been experiencing some short-term gains from the stock of late. Shares of the Melville, NY-based company that designs, manufactures, sells, and services magnetic resonance imaging (MRI) scanners have gained 5% in the past three months compared with the industry’s 2.5% rise. In the same time frame, the stock has also outperformed the sector’s 0.6% gain, but underperformed the S&P 500’s gain of 8.6%.

Two major developments of FONR in recent months include the receipt of a supplemental proposal from a group led by Timothy Damadian (which wants to take the company private by buying all shares they do not already own) and the announcement of its promising third-quarter fiscal 2025 results in July and May, respectively. The company reported a robust improvement in the top and bottom lines in the fiscal third quarter. However, the decline in its product sales was disappointing.

Per management, the quarterly results reflected the success of combining high-field MRIs with Stand-Up MRIs at certain facilities, noting that this hybrid model attracts a broader physician referral base and alleviates patient backlogs. A high-field MRI was added to the Melville, Long Island, location in March, and a similar installation is underway at a Nassau County facility, expected to become operational in the fourth quarter of fiscal 2025.

FONR’s Three Months Price Comparison

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Over the past three months, the stock’s performance has remained strong, outperforming that of its peers like United-Guardian, Inc. (UG Quick QuoteUG - Free Report) and ImmuCell Corporation (ICCC Quick QuoteICCC - Free Report) . United-Guardian and ImmuCell’s shares have gained 3.7% and 4.7%, respectively, in the same time frame.

Despite several challenges within the medical imaging industry, including rising operating expenses, weak equipment sales, and intensifying competitive pressures, the favorable share price movement suggests that the company may be able to maintain its positive market momentum at present.

FONAR specializes in open and upright MRI technology. Its signature product, the Upright MRI, enables whole-body imaging in various patient positions, including seated, standing and bending, unlike conventional MRI scanners that require patients to lie down. This feature particularly reduces discomfort, setting FONAR apart in a competitive MRI market dominated by high-field MRI providers.

FONR’s Strong Fundamentals Weigh In

FONAR’s stock is underpinned by the scale and stability of its diagnostic imaging management business, Health Management Company of America (“HMCA”). This subsidiary has steadily expanded its network of MRI centers in New York and Florida, establishing a reliable source of recurring revenue. By focusing on utilization growth and expanding its managed facilities, HMCA provides the company with consistent cash flow and long-term visibility.

A second strength lies in FONAR’s conservative financial structure. The company carries minimal debt, maintains ample liquidity and has demonstrated discipline in deploying capital through initiatives such as share repurchases. This balance sheet resilience allows FONR to weather fluctuations in reimbursement trends or operating costs while preserving flexibility to invest in growth opportunities.

FONAR’s differentiated technology, Upright Multi-Position MRI, is the only whole-body system that scans patients in weight-bearing positions, offering diagnostic insights unavailable in conventional machines. Protected by an extensive patent portfolio, this technology provides a durable competitive moat and positions the company uniquely in a market otherwise dominated by high-field systems from larger players.

Challenges Ahead for FONAR

FONAR faces structural challenges that weigh on its outlook. First, its heavy reliance on no-fault and personal injury claims exposes the business to prolonged collection cycles, insurer disputes and regulatory risks, pressuring cash flow quality. Second, rising operating expenses, including higher selling, general and administrative expenses and provisioning for receivables, have eroded margins and limited operating leverage, making it harder for FONR to translate scan volume growth into sustained profitability.

FONR Stock's Valuation

FONAR’s trailing 12-month EV/Sales of 0.4X is lower than the industry’s average of 6.4X and its five-year median of 0.6X.

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United-Guardian and ImmuCell’s trailing 12-month EV/Sales currently stand at 2.8X and 2.2X, respectively, in the same time frame.

Our Final Take on FONAR

There is no denying that FONAR sits favorably in terms of core business strength, earnings prowess, robust financial footing and global opportunities. The stock’s strong core growth prospects present a good reason for existing investors to retain shares for potential future gains. New investors are also likely to be motivated to add the stock following the current uptrend in share prices.

For those exploring to make new additions to their portfolios, the valuation indicates superior performance expectations compared with its industry peers. It is still valued lower than the industry, which suggests potential room for growth if it can align more closely with overall market performance. However, if investors are already holding the stock, it would be prudent to hold on to it at present.