Is Varex Imaging (VREX) a Compelling Buy at a Discount?

Varex Imaging (NASDAQ: VREX) has long been a subject of debate among value and growth investors, oscillating between undervaluation and operational challenges. As of September 2025, the stock appears to trade at a discount relative to its fundamentals, with a forward P/E ratio of 24.27 and a price-to-book (P/B) ratio of 0.88, both significantly below industry averages of 143.85 and 4.09, respectively [3]. This raises the question: Is VREX a compelling buy for investors seeking undervalued growth opportunities?

Undervaluation Metrics: A Value Investor’s Perspective

VREX’s valuation metrics suggest it is trading at a material discount to its peers. Its enterprise value-to-EBITDA (EV/EBITDA) ratio of 8.5 is well below the industry average of 12.5 [1], while its P/B ratio of 0.88 implies the market values its tangible assets at less than 25% of the sector median [5]. These figures align with historical patterns where VREX’s P/E ratio has fluctuated between negative values (due to recent losses) and forward-looking estimates, creating a mosaic of conflicting signals. For instance, while its 2024 P/E was negative (-7.66) due to a net loss [5], its 2025 forward P/E reflects optimism about earnings recovery.

The disparity between VREX’s valuation and its peers’ is stark. For example, the medical device sector’s average P/E of 143.85 [3] suggests that investors are willing to pay a premium for earnings in this space, yet VREX trades at a fraction of that multiple. This disconnect could indicate either a mispricing or lingering concerns about the company’s ability to sustain growth.

Earnings Growth and Institutional Confidence

Recent earnings reports, however, paint a more optimistic picture. In Q3 2025, VREX exceeded expectations with a non-GAAP EPS of $0.18, an 800% beat over forecasts, and revenue of $203 million, surpassing estimates by $8.22 million [1]. Analysts project continued momentum, with a 12-month price target of $19.50 (a 67% upside from its current price of $11.02) and EPS growth forecasts of 59.5% annually [3].

Institutional activity further supports this narrative. As of Q2 2025, 30.7% of VREX shares were held by institutions, including major players like Vanguard and Richard Pzena [4]. Notably, Graham Capital Management recently added $1.06 million to its stake in VREX [2], signaling confidence in its strategic initiatives, such as expansion into India and advancements in photon-counting technology [5].

Debt Coverage and Operational Risks

Despite these positives, risks persist. VREX’s debt-to-equity ratio of 0.78–0.86 [3] is higher than the industry median of 0.23 for medical device firms [1], and its interest coverage ratio of 4.09, while adequate, leaves little room for margin compression. The company has taken steps to reduce leverage, including paying off $200 million in convertible notes, which cut total debt from $567 million to $368 million [3]. However, a 3% year-over-year revenue decline in Q3 2025 [3] underscores the fragility of its top-line growth.

Market volatility also poses a challenge. VREX’s stock price has been erratic, swinging from a P/E of 18.38 in one report [4] to a negative 2024 P/E [5]. This volatility reflects uncertainty about its ability to translate short-term gains into long-term value.

Short-Term Catalysts vs. Long-Term Potential

The immediate outlook is bolstered by Q4 2025 guidance of $210–$230 million in revenue and non-GAAP EPS of $0.10–$0.30 [1]. These figures, combined with a strong liquidity position (current ratio of 4.36 [1]), suggest the company can navigate near-term challenges. For growth investors, the focus is on VREX’s innovation pipeline, particularly in photon-counting technology, which could drive margins higher in the industrial and medical segments [5].

Yet, the long-term appeal hinges on execution. While VREX’s debt reduction efforts are commendable, its ability to sustain earnings growth will depend on market adoption of new technologies and its success in emerging markets like India.

Conclusion: A High-Risk, High-Reward Proposition

Varex Imaging presents a compelling case for value investors seeking discounted assets with growth potential. Its valuation metrics, earnings surprises, and institutional backing suggest the stock is undervalued relative to its fundamentals. However, the risks—debt exposure, revenue volatility, and execution uncertainty—cannot be ignored. For investors with a medium-term horizon and a tolerance for volatility, VREX could offer a unique opportunity to capitalize on a turnaround story.

Source:
[1] Varex Imaging Q3 2025 Earnings Report [https://www.investing.com/news/transcripts/earnings-call-transcript-varex-imaging-q3-2025-eps-beats-forecast-stock-surges-93CH-4180061]
[2] Graham Capital Management’s Investment in VREX [https://www.marketbeat.com/instant-alerts/filing-graham-capital-management-lp-makes-new-106-million-investment-in-varex-imaging-vrex-2025-09-04/]
[3] VREX Valuation and Financial Health Analysis [https://simplywall.st/stocks/us/healthcare/nasdaq-vrex/varex-imaging]
[4] Institutional Ownership of VREX [https://www.tipranks.com/stocks/vrex/ownership]
[5] VREX Industry Averages and Strategic Initiatives [https://www.wallstreetzen.com/stocks/us/nasdaq/vrex]