RadNet tumbles after Hunterbrook Media calls it “the AI story that doesn’t add up” and investment arm announces short position
In investigating the company, “what emerged was a gap between story and substance: a Digital Health business that generates much of its growth by invoicing a different RadNet business line; a same-center sales metric seemingly juiced by undisclosed consolidations; financial disclosures that don’t add up; and insiders using the stock run-up to cash out,” wrote Hunterbrook authors led by Bethany McLean.
RadNet is plunging after a report coauthored by a prestigious journalist called the radiology company “the AI story that doesn’t add up.”
Hunterbook Media, which published the piece, said RadNet doesn’t deserve any AI-induced valuation increase, alleging it has limited revenues tied to the emergent technology, with much of that being linked to what it sells to its own imaging centers. The outlet also said that RadNet’s same-center sales growth is really much lower than it appears, having been artificially boosted by shifting patients over from closed sites nearby.
RadNet’s market value peaked above $6.5 billion last month, and it came into Tuesday with a market cap of approximately $5.6 billion.
In investigating the company, “what emerged was a gap between story and substance: a Digital Health business that generates much of its growth by invoicing a different RadNet business line; a same-center sales metric seemingly juiced by undisclosed consolidations; financial disclosures that don’t add up; and insiders using the stock run-up to cash out,” Hunterbrook wrote.
Hunterbrook Capital, the investment firm tied to Hunterbrook Media, said it was short RadNet at the time of publication.
RadNet’s forward price-to-earnings ratio hit a post-Covid peak above 160x in June 2023 after CFO Mark Stolper talked up how previous M&A activity left it well positioned for an AI era.
“So about two and a half years ago, we — I guess we were early in the AI craze,” he said at a healthcare conference hosted by Jefferies, referencing its purchase of DeepHealth, which was developing an AI mammography tool for breast cancer.
“One of the competitive advantages we have is under one roof. We have the largest repository of digital images in the world,” he added. “Owning our own data is ideal for training our own algorithms, right?”
RadNet’s forward price-to-earnings ratio was about 95x as of the close on Monday.
Bethany McLean, the leading byline on this investigation, is credited with breaking the story on Enron’s fraud.
Given her history, I suppose AI bulls are breathing a small sigh of relief that the company she’s set her sights on now is far from a household name. CoreWeave, Oracle, and Nvidia had been some of the guesses that commenters on X made in the replies after Hunterbrook teased this piece.
