Luna Up 90 Percent On Wednesday – Why?
Shares of Luna Innovations (NASDAQ: LUNA) were up almost 90 percent on Wednesday. The 6.6 million shares that changed hands blew away the average of 158,448 shares per day, so what caused this $36 million company to nearly double in value?
The company announced that it’s selling its shape-sensing technology for medical applications to Intuitive Surgical (NASDAQ: ISRG). Luna will receive $12 million upfront in two tranches and up to an additional $18 million based on certain milestones and commercial factors, according to the press release.
Intuitive Surgical will acquire Luna’s fiber optic shape-sensing and localization technology, including all related patents. It will also hire certain engineers familiar with the technology.
Luna clearly doesn’t want to be in the medical business—at least right now. It said that the sale will allow it to focus on fiber optic sensing technology that improves manufacturing and testing of composite and non-composite materials.
According to CEO My Chung, “With strain and temperature sensing now as our key focus, we’re prepared to develop technological solutions for this growing market with our proven technology.”
The other upside for Luna is a cash infusion. The $24 million upfront payment represents about two-thirds of Luna’s total market cap. This fact alone is a large part of what sent the stock rocketing higher on Wednesday.
But does that make the stock a buy? Because the company is a microcap name, analyst coverage is scarce. TheStreet, however, points out that net operating cash flow is down about 91 percent year-over-year, it’s return on equity is lower than its ROE from the same quarter the year prior, and net income is 179 percent lower year over year. It fell from -$0.22 million to -$0.61 million.
Does the chart look a little better?
Not really. Not taking into account yesterday’s move, one might characterize the stock as sleepy. Luna has remained range-bound since 2012. Wednesday's move isn’t likely to be the start of an upward move. The market mostly priced in the infusion of cash that Luna will receive. Going forward, there isn’t much to propel this stock higher in the short term.
Luna closed at $2.50 Wednesday.
Disclosure: At the time of this writing, Tim Parker had no position in the company mentioned.
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