Medical device company Ra Medical Systems, Inc. (RMED) in Carlsbad, Calif., is designs, develops, and markets excimer lasers to treat vascular diseases. The company has made significant progress in key initiatives, including its DABRA technology laser system and atherectomy pivotal clinical study. However, the penny stock has declined 86.8% in price over the past six months and 92.7% over the past year, reflecting investor concerns over its disappointing revenue and earnings growth and the sale of its dermatology business.

Closing yesterday’s session at $0.42, the stock is currently trading 95.7% below its 52-week high of $9.82, indicating bearish sentiment. 

While the commercial-stage medical device company has filed a 510(k) application with the U.S. Food and Drug Administration (FDA) for its DABRA catheter, its commercialization prospects remain uncertain until its product receives approval from the FDA. Furthermore, the stock’s negative profitability could make investors anxious.

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Here is what could influence RMED’s performance in the near term:

Selling Shares

Last month, RMED priced an underwritten public offering of units of its common stock, including warrants to purchase up to 27.6 million shares of the common stock and pre-funded warrants to purchase up to 14.47 shares of common stock. The medical device manufacturer expects approximately $12.1 million in gross proceeds from the offering.

Divestiture of Dermatology Business

In the third quarter, RMED completed the sale of its Pharos dermatology business for net proceeds of approximately $3.5 million. This was done as a part of the company’s plans to focus its resources on the market for medical devices to treat peripheral artery disease (PAD). However, the divestiture could negatively impact the medical device maker’s revenues and cost structure in the near term and cause RMED’s stock price to tumble further.

Bleak Profitability

The company’s trailing-12-month ROA and cash from operations are negative 100.6% and $31.33 million, respectively. Furthermore, its trailing-12-month gross profit margin, ROE and ROTC are negative 18.9%, 115%, and 67%, respectively. And its 0.12% asset turnover ratio  is 65.2% lower than the 0.34% industry average.

Faltering Financials

RMED’s net revenue from continuing operations came in at $5,000 for the third quarter, ended Sept. 30, 2021, versus  $68,000 in the third quarter of 2020. Its gross loss stood at $24,000 for the quarter, while operating loss came in at $7.39 million. Furthermore, its net loss amounted to $4.3 million, while its loss per share came in at $0.67. RMED reported a negative adjusted EBITDA of $6.95 million versus $6.06 million in the prior-year quarter. And its  total operating expenses grew 2.1% year-over-year to $7.15 million during this period.

POWR Ratings Reflect Bleak Prospects

RMED has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. RMED has an F grade for Quality. This reflects the stock’s negative ROA and cash flow from operations.

The company has a D grade in Momentum, consistent with its price decline over the past six months. Also, it has an F grade for Stability, which is in sync with its relatively high beta of 1.65.

Beyond the grades I have highlighted, one can check out additional RMED ratings for Sentiment, Growth, and Value here. Among the 166 stocks in the D-rated Medical – Devices & Equipment industry, RMED is ranked #119.

Bottom Line

Analysts expect RMED’s EPS to remain negative this year. While its efforts to develop DABRA catheters bode well, its negative profit margin and inadequate financial strength could cause its shares to decline further. Furthermore, the uncertainty surrounding the regulatory clearance and commercialization of its DABRA laser system could raise investors’ concerns. So, we think it is best avoided now.

How Does Ra Medical Systems (RMED) Stack Up Against its Peers?

While RMED has an overall D (Sell) rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Fonar Corporation (FONR), Electromed, Inc. (ELMD), and Abbott Laboratories (ABT), having an A (Strong Buy) rating.

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RMED shares fell $0.03 (-6.75%) in premarket trading Monday. Year-to-date, RMED has declined -74.36%, versus a -9.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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