Is Varex Imaging Stock a Value Opportunity or a Trap for Investors?

Varex Imaging Corporation delivered a surprisingly robust quarterly performance that exceeded market expectations. Although the company experienced a minor revenue contraction, its earnings per share dramatically outperformed analyst forecasts. The market’s muted reaction in the share price raises a compelling question: has this strong operational showing been overlooked?

Stellar Earnings Defy Sector Challenges

The manufacturer of X-ray imaging components reported its third-quarter fiscal 2025 results, revealing exceptional profitability. Varex Imaging’s non-GAAP earnings per share reached $0.18, surpassing the consensus estimate of $0.04 by a remarkable 800 percent. This performance demonstrates impressive cost management capabilities despite a 3 percent decline in overall revenue.

Divergent Segment Performance Highlights Strategic Positioning

A detailed look at segment performance reveals contrasting trajectories. The medical segment declined by 4 percent to $142 million, while the industrial division proved more resilient, recording a 1 percent increase to $61 million. This business diversification may provide a strategic advantage, with demand for industrial X-ray solutions showing greater stability.

The company’s financial foundations remain strong:
* Maintained an adjusted gross margin of 34 percent
* Generated quarterly operating cash flow of $8 million
* Current ratio of 4.36 indicates exceptional liquidity strength

Significant Upside Potential According to Market Experts

Financial analysts appear considerably more optimistic than current market pricing suggests. The average price target of $19.50 implies substantial appreciation potential exceeding 67 percent from current levels. This confidence stems from projected annual earnings growth rates approaching 60 percent.

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

Valuation metrics present a compelling case: Varex Imaging trades significantly below its intrinsic value. The enterprise value to EBITDA multiple of 8.5 sits well below the industry average of 12.5, while both price-to-earnings and price-to-book ratios similarly indicate potential undervaluation.

Institutional Investors Increase Exposure Substantially

Sophisticated market participants appear to be recognizing this opportunity. Institutional ownership now exceeds 30 percent of outstanding shares, with several major funds aggressively increasing their positions during the first quarter of 2025—some by more than 230 percent. This substantial institutional accumulation underscores professional confidence in the company’s long-term prospects.

Management guidance for the current quarter projects revenue between $210 million and $230 million, with adjusted earnings per share anticipated in the range of $0.10 to $0.30. The promising photon counting technology platform may serve as an additional catalyst for future growth.

The central question for investors remains: when will the market price align with both the company’s operational excellence and analytical optimism?