Fonar: A Company Ready For New Highs Again - Part 2

May.12.13 | About: Fonar Corporation (FONR)

After writing my first article on Fonar (NASDAQ:FONR) on November 14th, 2012 that can be seen here, we have seen the stock rise from $5 to the current price of around $6.88. The stock is now in a very nice uptrend and, as they say, don't fight the trend. We have seen a consolidation since, and this article explains why I have been adding recently to my long-term position.

The story

The company has a niche in the medical field. It produces the only upright MRIs in the market. I work in the medical field treating people with back pain, and the number of referrals for upright MRIs continue to increase in this practice.

The picture below shows a disk herniation that can be seen more clear with an upright MRI.

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Fundamental analysis

The financials of the company continue to be very strong. The company has a current market cap of around $40m. The float is very small with only 5.29m shares reported. 190,000 shares are short, which is 4% of the float. 22% of the float is owned by institutions. The company has $0 debt and $14.76m cash in the bank, which means the chances of a secondary offering remain very low.

There has been no insider sales in the last few years.

Exciting future

On March 6th, 2013, FONR reported that HMCA, a subsidiary of FONR, acquired a business managing 12 Stand-up(R) MRI centers and 2 other scanning centers located in Florida and New York. Thus, FONR has increased its MRI scanners from 11 to 23. This will comprise the largest network of stand-up MRIs in the whole nation.

The last earnings report was quite good and the company continues an impressive run of 6 straight quarters of profitability. Income from operations was $1.7 million. Total revenue was $9.6 million.

This is where it gets interesting. Revenue from the management and other fees segment of the 11 upright MRIs was $5.7 million. Now remember that FONR has another 12 upright MRIs, so the revenues and income is expected to be double. One has to remember that revenue from the manufacturing and service segments was $3.9 million, so the potential of doubling this is there in the next quarters.

Technical analysis

Both the daily charts and the weekly charts show a period of consolidation, with potential of new highs around the corner.

If we look at the weekly chart, one can see a beautiful bull flag forming. Volume has been decreasing in the last few weeks as prices consolidate. The recent highs of $7.82 is my first target.

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FONR continues to work with a number of doctors and in different symposiums to increase the awareness of its product. On April 6th, a symposium was presented on the use of the upright MRI and the importance of knowledge on Cranio-cervical Syndrome. The company continues to grow, and with its recent partnership on the addition of upright MRIs, I believe the story is set for higher prices.

Disclosure: I am long FONR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.