February 16, 2025
Raymond Damadian is the founder of FONAR Corporation and he is one of the co-inventors of MRI technology. The other co-inventor is Professor Paul Lauterber of Stony Brook University. In the 1970s, they discovered how to use nuclear magnetic resonance technology—previously used in the chemistry lab to identify molecules—to form images of the internal tissues of the human body. This was one of the great inventions in medicine. Doctors rely heavily on the MRI exam to diagnose a wide variety of conditions, from brain and spine problems to organ problems to bone and ligament issues.
(h/t to anton613 of Value Investors Club. See (you may have to register, but it’s free): https://www.valueinvestorsclub.com/idea/FONAR_CORP/5954105606)
Dr. Damadian also invented the FONAR Upright Multi Position MRI. The Upright MRI produces images when a person is standing up or sitting (or anything in-between). This means a more accurate diagnosis when examining things like the spine or the flow of cerebrospinal fluid—both of which appear differently when a person is standing up. Also, a weight-bearing position is often the position in which a person experiences pain.
In 2011, Dr. Damadian used the FONAR Upright MRI to produce images of cerebrospinal fluid flow in eight MS patients. The study demonstrated that leakage of cerebrospinal fluid may have caused brain lesions leading to MS.
There are many other conditions where the Upright MRI can provide a more accurate diagnosis, including abdominal prolapses, inguinal hernias, scoliosis, fallen cerebral tonsil disease, and Arnold-Chiari syndrome.
The MRI equipment business includes large manufacturers such as Hitachi, Siemens, General Electric, and Philips N.V. It’s a highly competitive space.
The CEO of FONAR is Timothy Damadian, the founder’s son, who started working at the company in 1985 and worked his way up. He became CEO in 2016.
FONAR was the first MRI company in the industry, introducing the world’s first commercial MRI in 1980. FONAR’s business has two segments:
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- The medical equipment segment, which sells the Standup MRI.
- The physician management and diagnostic services segment, which manages MRI scanners in New York and Florida. The bulk of the company’s revenues comes from this segment. The company offers office space, repair and maintenance, medical record management, personnel management, IT services, management services, billing and collection, credentialism, compliance, and purchasing, among other things.
FONAR introduced the Open MRI in 1980, the benefit being that the patient—who may be claustrophobic—does not have to be enclosed for the duration of the exam (30 to 60 minutes or longer). Later on, the company invented the Upright MRI, which is even more useful.
Important Note: The demand for MRI scans continues to increase.
FONAR’s market cap is $104 million, while its enterprise value is $90.8 million.
Here are the metrics of cheapness:
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- EV/EBITDA = 3.45
- P/E = 11.61
- P/B = 0.62
- P/CF = 7.36
- P/S = 1.03
Note: The company is buying back stock, which is good because the stock appears materially undervalued with EV/EBITDA of 3.45 and P/B of 0.62.
ROE is 8.1%, which is low.
The Piotroski F_Score is 6, which is decent.
Insider ownership is low at 2.4%. Cash is $54.3 million while debt is $41.2 million. TL/TA (total liabilities / total assets) is excellent at 26.8%.
Intrinsic value scenarios:
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- Low case: If there’s a bear market and/or a recession, the stock could decline. If the reimbursement rates from Medicare decline, that could cause the stock to fall.
- Mid case: FONAR should have a P/B ratio of at least 1.0. That would put the stock at $26.21, which is over 60% higher than today’s $16.25.
- High case: The company should have an EV/EBITDA ratio of at least 8. That would put the stock at $37.68, which is 130% higher than today’s $16.25.
RISKS
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- If there’s a bear market and/or a recession, the stock would probably decline.
- If the reimbursement rates from Medicare decline, that could significantly lower earnings and thus the stock price.
- Healthcare laws often change, and they could change in a way that adversely affects FONAR.
- With its ownership of super-voting B and C shares, management controls the company without having a majority of the economic interest in the company.
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