RaySearch Laboratories: Navigating Short-Term Headwinds to Unlock Long-Term Oncology Software Growth

RaySearch Laboratories (STO: RAY A) has long been a standout in the oncology software sector, leveraging its proprietary AI-powered solutions to transform radiation therapy planning and delivery. However, recent quarterly results—GAAP EPS of SEK0.90 and revenue of SEK304.9 million in Q2 2025—have sparked questions about the company's trajectory. A deeper analysis reveals that these figures, while reflecting a slowdown compared to prior-year highs, still position RaySearch as a compelling long-term investment, underpinned by its technological edge, recurring revenue model, and expanding global footprint.

Historical Growth: A Foundation of Resilience

From 2020 to 2024, RaySearch's revenue grew at a compound annual rate of 14.2%, accelerating to 16.62% in the most recent fiscal year. Earnings per share (EPS) surged even more dramatically, expanding at a 55.6% CAGR, with a 151.72% year-over-year jump in 2024 alone. This outpaced the Healthcare Services industry's negative 6.9% earnings growth, underscoring RaySearch's ability to capitalize on its niche. The company's return on equity (24.3%) and operating margin (22.55% in Q1 2025) further highlight its efficient capital deployment and scalable business model.

Q2 2025: A Pause, Not a Collapse

The second quarter of 2025 saw a 15.4% decline in GAAP EPS to SEK0.90 and a 4.4% drop in revenue to SEK304.9 million compared to Q2 2024. While these figures are concerning, they must be contextualized. First-half 2025 net sales of SEK636.6 million still represent a 10.5% year-over-year increase, and order intake for the period reached SEK650.8 million—a 23% rise from the first half of 2024. The decline in Q2 appears to stem from a combination of factors: a challenging macroeconomic environment in key markets, delayed customer decisions due to regulatory shifts, and the natural variability of a business with a high proportion of recurring revenue.

Moreover, RaySearch's order backlog of SEK1.665 billion at the end of Q2 remains robust, ensuring a pipeline of future revenue. The company also launched RayStation v2025, integrating machine learning for faster treatment planning, and expanded RayCare's interoperability features—both of which should drive adoption in 2026.

Strategic Tailwinds: AI and Global Expansion

RaySearch's long-term growth hinges on two pillars: its AI-driven innovation and its global expansion. With over 1,100 clinics using its software, the company is uniquely positioned to benefit from the rising demand for precision oncology. The integration of machine learning into RayStation, for instance, reduces planning time by up to 50%, a critical differentiator in a sector where efficiency and accuracy are paramount.

Geographically, RaySearch is expanding into emerging markets, where healthcare digitization is accelerating. Partnerships with local distributors in Asia-Pacific and Latin America are expected to unlock new revenue streams. Meanwhile, the company's recurring revenue model—over 60% of sales come from support contracts—provides stable cash flow, insulating it from the volatility of one-time sales.

Investment Thesis: Buy the Dip, Not the Noise

While the Q2 results may test investor confidence, they should not overshadow RaySearch's long-term potential. The company's trailing twelve months (TTM) revenue of SEK1.27 billion reflects a 20.72% year-over-year increase, and its first-half 2025 operating margin of 17.5% (SEK111.2 million profit on SEK636.6 million revenue) remains impressive for a high-growth tech firm.

For investors, the current dip in GAAP metrics presents an opportunity to enter at a discount to intrinsic value. RaySearch's strong balance sheet, with SEK1.665 billion in backlog and SEK217.4 million in first-half 2025 operating cash flow, provides flexibility to invest in R&D or pursue strategic acquisitions. Additionally, the company's 29% revenue growth in Q1 2025 and 23% increase in first-half order intake demonstrate resilience in the face of macroeconomic headwinds.

Risks and Considerations

Investors should remain cautious about near-term volatility. A slowdown in new customer acquisitions or delays in product launches could pressure margins. Regulatory changes in key markets, such as the U.S. or EU, could also impact adoption. However, RaySearch's first-mover advantage in AI-driven oncology software and its focus on interoperability and workflow optimization mitigate many of these risks.

Conclusion: A High-Conviction Buy

RaySearch Laboratories' recent GAAP EPS and revenue figures may signal a temporary pause in its hypergrowth, but they do not negate the company's long-term potential. With a 14.2% CAGR in revenue over the past five years, a 55.6% CAGR in EPS, and a product portfolio that is redefining oncology care, RaySearch remains a compelling investment. For those willing to look beyond short-term fluctuations, the company's AI-driven innovation, recurring revenue model, and global expansion plans offer a clear path to sustained value creation.

Investment Recommendation: Buy RaySearch Laboratories (STO: RAY A) for a long-term horizon, with a target price based on 2026 revenue estimates and a 25% discount to its five-year average price-to-sales ratio. Monitor Q3 2025 results for signs of renewed momentum in order intake and customer adoption.