Elekta: Driving the Future of Cancer Care

Elekta is one of the world's leading providers of equipment and software used to treat cancer with radiation therapy. The company develops advanced treatment systems that help hospitals deliver more precise and effective cancer care while improving productivity and patient outcomes. With a large installed base, growing recurring service and software revenue, and continued investment in innovation, Elekta aims to strengthen its position in precision radiotherapy while driving long term profitable growth. The question remains: Does this medtech turnaround deserve a spot in your portfolio?

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The Business

Elekta was founded in 1972 in Sweden and has grown into one of the world's leading providers of precision radiotherapy solutions for cancer treatment. The company develops, manufactures, and services integrated hardware, software, and digital solutions that enable hospitals and cancer centers to plan, deliver, and optimize radiation therapy with high precision. Its mission is to improve cancer care by making treatments more accurate, personalized, and efficient while expanding access to advanced radiotherapy around the world. Today, Elekta has an installed base of more than 7.500 radiotherapy systems across over 120 countries, and more than two million patients are treated on its equipment every year. Elekta operates a highly integrated business model that combines advanced treatment machines, oncology software, and long-term service agreements into a unified ecosystem. Rather than simply selling equipment, the company supports hospitals throughout the entire lifecycle of its products, from installation and clinical training to software upgrades, predictive maintenance, workflow optimization, and ongoing technical support. This approach creates long-lasting customer relationships that often extend over decades while generating an increasing share of recurring revenue through software subscriptions, service contracts, upgrades, and professional services. As its software platform continues to expand, Elekta is gradually shifting a larger portion of its revenue toward more predictable and recurring sources, strengthening both cash flow and business resilience. The company's product portfolio covers nearly every aspect of modern radiotherapy. Its linear accelerators deliver highly targeted external beam radiation to cancer patients and range from systems designed for high patient throughput to advanced platforms capable of adaptive treatment that adjusts therapy based on changes in a patient's anatomy. Elekta is also the only company offering a commercially available MRI-guided linear accelerator, combining high-quality magnetic resonance imaging with radiation delivery to improve precision for difficult-to-treat tumors. Alongside its treatment machines, the company provides the Elekta ONE software platform, which integrates treatment planning, oncology information systems, workflow management, quality assurance, and AI-enabled clinical applications into a unified digital environment that supports the entire treatment process. Beyond external beam radiotherapy, Elekta holds leading positions in several highly specialized treatment categories. The company is the global leader in high-dose-rate brachytherapy, where radioactive sources are temporarily placed inside or very close to tumors to deliver highly localized treatment while minimizing damage to surrounding tissue. This therapy is considered the standard of care for cervical cancer and is increasingly used for prostate, breast, skin, and other cancers. Elekta is also the global leader in stereotactic radiosurgery through its Leksell Gamma Knife platform, which is widely regarded as the gold standard for treating brain tumors and neurological disorders without open surgery. More than two million patients have been treated using Gamma Knife technology since its introduction, and the system remains the preferred choice for many of the world's leading neurosurgery and radiation oncology centers. Several long-term trends continue to support demand for Elekta's solutions. Cancer incidence is increasing as populations age and life expectancy rises, while healthcare systems are under growing pressure to treat more patients efficiently and at lower cost. Radiotherapy is one of the most cost-effective cancer treatments available and plays a role in treating roughly half of all cancer patients while accounting for only a small portion of total cancer treatment spending. At the same time, technological advances such as adaptive radiotherapy, AI-assisted treatment planning, improved imaging, and hypofractionation are enabling hospitals to deliver more precise treatments in fewer sessions, improving patient outcomes while increasing productivity. These trends continue to drive demand for increasingly sophisticated radiotherapy solutions, positioning Elekta to benefit from long-term structural growth in global cancer care. Elekta's competitive moat is primarily built on its technological expertise, installed base, integrated ecosystem, and strong position in highly specialized radiotherapy markets. Precision radiotherapy is among the most technologically demanding areas of medical technology, requiring decades of engineering experience, advanced imaging capabilities, sophisticated treatment planning software, extensive clinical validation, and regulatory approvals across multiple jurisdictions. These barriers make it extremely difficult for new competitors to enter the market. Elekta has spent more than fifty years building expertise in precision radiotherapy and has continuously introduced innovations that have helped shape the evolution of modern cancer treatment, from Gamma Knife radiosurgery and image-guided radiotherapy to MRI-guided adaptive radiotherapy. This long history of innovation has established the company as one of only a handful of global players capable of competing at the highest level. Another important competitive advantage is Elekta's large installed base. Radiotherapy equipment typically remains in operation for ten to fifteen years or longer, creating long customer relationships and substantial switching costs. Once a hospital installs Elekta's equipment, clinicians receive extensive training, treatment protocols become integrated into clinical workflows, and the company's software becomes deeply embedded within the oncology department. Replacing an installed system requires significant capital investment, operational disruption, regulatory validation, and staff retraining, making customers less likely to switch providers. The installed base also generates recurring revenue through maintenance agreements, software upgrades, replacement parts, and professional services, creating predictable cash flows that extend well beyond the initial equipment sale. Elekta's integrated ecosystem further strengthens its competitive position. Rather than offering standalone products, the company increasingly connects its hardware, software, AI capabilities, and service offerings through the Elekta ONE platform. This integration simplifies clinical workflows, improves treatment efficiency, and enables advanced capabilities such as adaptive radiotherapy, predictive maintenance, AI-assisted imaging, and workflow automation. As more clinical functions become connected within a single software environment, the value of the overall platform increases, making it more attractive for hospitals to continue expanding within the Elekta ecosystem rather than adopting competing solutions. The company's leadership in several niche markets also reinforces its moat. Elekta is the clear global leader in Gamma Knife radiosurgery and high-dose-rate brachytherapy, where it holds dominant market positions supported by decades of clinical evidence, specialized physician training programs, and extensive scientific literature. These leadership positions have created strong reputations among clinicians and have established Elekta's technologies as the preferred standard of care for many specialized treatments. In conventional linear accelerators, the company competes as the second-largest global provider behind Siemens Healthineers' Varian business, while maintaining differentiated positions through MRI-guided radiotherapy, adaptive treatment capabilities, and software integration. Combined with its global service organization, strong research and development capabilities, extensive regulatory expertise, and deep relationships with leading cancer centers worldwide, these advantages create meaningful barriers to entry that are difficult for competitors to replicate.

Management

Jakob Just-Bomholt became President and CEO of Elekta in 2025, joining the company at a pivotal time following several years of disappointing execution and financial underperformance. The Board appointed him with a clear mandate to restore growth, improve profitability, and strengthen Elekta's competitive position. He brings extensive leadership experience from the healthcare, medical technology, and logistics industries, along with a proven track record of driving operational improvements and profitable growth. His appointment reflects Elekta's belief that the company's challenges have been driven more by execution than by weaknesses in its underlying business or market opportunity. Before joining Elekta, Jakob Just-Bomholt served as CEO of 3Shape, one of the world's leading providers of digital dentistry solutions, where he led the company from 2020 to 2025. During his tenure, 3Shape continued expanding its global presence while strengthening its position as an innovation leader in digital dental workflows. Prior to that, he served as CEO of Falck Emergency Services from 2017 to 2020, overseeing one of the world's largest emergency healthcare and ambulance providers. Earlier in his career, he held several senior leadership positions within the A.P. Moller-Maersk Group, including CEO of Seago Line and Managing Director of Maersk Line Brazil, giving him extensive international experience in leading large global organizations and managing complex operational businesses. He holds an MBA with distinction from INSEAD and a Graduate Diploma in Finance from Copenhagen Business School. Since becoming CEO, Jakob Just-Bomholt has been highly transparent about Elekta's recent shortcomings. Rather than attributing the company's weak performance to market conditions, he has openly acknowledged that Elekta has not operated at its full potential and that the organization needed fundamental change. His turnaround strategy has focused on simplifying the organization, improving accountability, strengthening commercial execution, and creating a more customer-centric culture. One of his first initiatives was a major organizational restructuring that reduced management layers, decentralized decision-making, and empowered employees closer to customers to make faster decisions. The objective has been to increase the speed of innovation and improve operational execution across the company. A key part of Jakob Just-Bomholt's strategy has also been strengthening Elekta's leadership team. Since his arrival, the company has appointed several new executives, including a new Chief Financial Officer, Chief Human Resources Officer, and Chief Operating Officer, while refreshing a significant portion of the executive management team. He has placed considerable emphasis on building a performance-oriented culture with clearer accountability, stronger execution, and incentive structures that are closely aligned with shareholder value creation. He has also personally demonstrated his commitment by acquiring one million Elekta shares, ensuring meaningful alignment between management and shareholders. Looking ahead, Jakob Just-Bomholt believes Elekta possesses all the ingredients needed to become a stronger company. He has repeatedly highlighted the attractive long-term fundamentals of the radiotherapy market, the company's leading positions in several product categories, and its deep technological expertise. His focus is therefore not on changing Elekta's strategic direction, but on improving execution and unlocking the potential of a business that already benefits from strong competitive advantages. While the turnaround is still in its early stages, his willingness to make difficult organizational changes, build a stronger leadership team, and establish a culture centered on accountability and customer focus suggests he is taking the right steps to position Elekta for sustainable long-term growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Elekta's ROIC has historically been more volatile than I would ideally like to see. The company exceeded 10% in several years between fiscal 2018 and 2024, but it has generally remained in the high single-digit to low double-digit range rather than reaching the consistently high levels achieved by many of the best medical technology companies. While these returns are respectable, they are somewhat disappointing given Elekta's strong competitive position and the attractive characteristics of the radiotherapy market. Several factors help explain why Elekta has not generated higher returns on invested capital. First, the company operates in a highly specialized industry that requires continuous investment in research and development. Precision radiotherapy is among the most technologically demanding areas of medical technology, and maintaining leadership requires significant spending on imaging, software, treatment planning, adaptive radiotherapy, and artificial intelligence. These ongoing investments increase the company's capital base but are necessary to preserve its long-term competitive position. Second, Elekta's products are highly complex and sold through long sales cycles to hospitals and cancer centers. Orders can take months or even years to convert into revenue, while manufacturing capacity, service infrastructure, and product development must be maintained regardless of the timing of customer purchases. This creates a business that is naturally more capital intensive than many other medical technology companies. Third, Elekta has simply not executed as well as it should have over the past several years. Management has openly acknowledged that the company failed to respond quickly enough to changes in the market, resulting in slower growth, weaker profitability, and operational inefficiencies. The underlying business continues to benefit from high switching costs, recurring service revenue, and leading positions in several product categories, but these strengths have not translated into the level of profitability that investors would expect from a company with such an attractive competitive moat. ROIC declined further in fiscal 2026 to its lowest level in many years. The primary reason was a significant deterioration in operating profitability rather than a fundamental change in the quality of the business. During the year, Elekta was affected by weaker commercial execution, lower margins, restructuring costs related to the company's turnaround program, and continued investments in innovation and organizational changes. At the same time, the company continued investing in its installed base, software platform, and research and development, meaning invested capital remained relatively stable while earnings declined. Since ROIC is driven by both profitability and the amount of capital employed, lower operating earnings naturally resulted in weaker returns on invested capital. Looking ahead, I believe ROIC has the potential to improve over the coming years. New CEO Jakob Just-Bomholt has made it clear that Elekta's primary challenge is execution rather than strategy. Since taking over, he has simplified the organization, reduced management layers, strengthened the leadership team, decentralized decision-making, and introduced stronger performance incentives. If these initiatives lead to improved commercial execution, higher margins, and faster revenue growth, profitability should recover while the company's installed base continues generating recurring service and software revenue. Combined with structural growth in cancer treatment, increasing adoption of adaptive radiotherapy, and Elekta's strong competitive positions in Gamma Knife, brachytherapy, and precision radiotherapy, these factors should support a gradual improvement in ROIC. While I do not expect Elekta to consistently generate the exceptionally high returns achieved by some asset-light medical technology companies, I believe the business is capable of delivering returns comfortably above 10% over time if management successfully executes its turnaround plan.

The following numbers represent the book value + dividend. In my previous format, this was The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Elekta steadily increased its equity every year from fiscal 2017 through fiscal 2024, reflecting years of profitable operations and a business that generally generated more earnings than it distributed to shareholders. This consistent increase demonstrates the company's ability to create value over time despite periods of slower growth and operational challenges. Unlike many mature companies that rely heavily on share repurchases, Elekta has historically retained a meaningful portion of its earnings to support investments in research and development, manufacturing, software, and the expansion of its installed base. The sharp decline in equity during fiscal 2025 and fiscal 2026 was primarily the result of accounting write-downs rather than a deterioration in the underlying competitive position of the business. After the new management team joined the company, they conducted a comprehensive review of the balance sheet and concluded that certain previously capitalized research and development assets and other balance sheet items no longer reflected their expected future value. As a result, Elekta recognized approximately SEK 2,5 billion of impairments and write-downs, which directly reduced shareholders' equity. While these write-downs had a significant accounting impact, they did not represent cash leaving the business. Instead, they reflected a more conservative assessment of assets that had been accumulated over several years. Management has stated that the balance sheet is now better aligned with the company's current strategy and future business assumptions. The decline in fiscal 2026 was also affected by weaker profitability. Lower operating earnings meant that less value was added to retained earnings during the year, while the balance sheet continued to reflect investments in the business. Together, the combination of lower earnings and the previous year's impairments resulted in equity falling for a second consecutive year. Importantly, the recent decline in equity does not appear to reflect a weakening of Elekta's competitive position. The company continues to hold leading positions in precision radiotherapy, maintains a large installed base that generates recurring service revenue, and operates in a market supported by favorable long-term demographic trends. The reduction in equity is therefore largely the result of management resetting the balance sheet while beginning a broader turnaround of the business rather than a sign that the company's competitive advantages have disappeared. Looking ahead, I expect equity to resume growing over time. Management believes the major balance sheet cleanup is now complete and has indicated that future capitalization of research and development will be much more balanced with amortization, reducing the risk of large write-downs similar to those seen in fiscal 2025. If the company's turnaround succeeds, higher profitability should gradually increase retained earnings and support equity growth. Continued investments in innovation, software, and the installed base will likely remain important uses of capital, but with a cleaner balance sheet, improving operational performance, and growing recurring revenue, equity should once again trend upward over the long term.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Elekta has historically generated healthy free cash flow, although both free cash flow and free cash flow margins have fluctuated from year to year. Despite this volatility, the company has consistently remained cash generative, and free cash flow reached its highest levels in fiscal 2025 and fiscal 2026. This demonstrates the resilience of Elekta's business model even during a period when the company has been undergoing a significant operational turnaround. One of the main reasons Elekta generates healthy free cash flow is its large installed base of radiotherapy systems. Once a treatment machine has been installed, it typically remains in operation for many years and requires ongoing maintenance, software updates, technical support, and replacement parts. These recurring service revenues are generally predictable, carry attractive margins, and convert well into cash. As the installed base continues to grow, the recurring portion of Elekta's revenue also increases, providing a stable foundation for future cash generation. Another important driver of free cash flow is the company's software business. Hospitals increasingly rely on Elekta's oncology software to manage treatment planning, clinical workflows, and patient information. As more software is delivered through recurring agreements rather than one-time licenses, the business benefits from more predictable revenue and cash flows. Combined with the recurring service business, this creates a more resilient financial profile than would be achieved by equipment sales alone. The significant improvement in free cash flow during fiscal 2025 and fiscal 2026 was primarily driven by stronger profitability together with the operational improvements introduced under the new management team. As the company simplified its organizational structure and reduced costs, operating margins improved and more earnings were converted into cash. Management also reduced investment spending compared to previous years while improving cash generation from day-to-day operations. Importantly, the company generated stronger cash flow despite paying substantial restructuring costs related to its turnaround program. This allowed Elekta to reduce net debt for the first time in several years while maintaining its dividend. Looking ahead, free cash flow is expected to continue improving. Management expects revenue growth to accelerate over the coming years as new products such as Evo are rolled out more broadly, software and service revenue continue to expand, and operational improvements lift profitability. The company's medium-term targets imply a meaningful increase in cash generation, with free cash flow before dividends expected to reach approximately 10% of sales by fiscal 2029. While free cash flow may fluctuate from year to year as sales grow and the company invests in innovation and expansion, the combination of improving margins, growing recurring revenue, and continued cost discipline should support stronger cash generation over time. Elekta uses its free cash flow in several ways. First, the company reinvests in the business through research and development, product innovation, software development, manufacturing capabilities, and the expansion of its service organization to strengthen its long-term competitive position. Second, management has prioritized reducing net debt as cash generation improves, creating a stronger balance sheet and greater financial flexibility. Finally, Elekta returns cash to shareholders through dividends. The company has maintained a stable dividend policy, distributing at least 50% of net income while preserving sufficient financial resources to invest in future growth. As free cash flow continues to improve, management has also indicated that share repurchases could become an additional method of returning capital to shareholders when conditions are appropriate. The free cash flow yield suggests that Elekta is trading at a very attractive valuation. However, we will revisit the valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Elekta’s financials, the company currently has 3,8 years of earnings in debt, which is slightly above the three-year threshold. It is important to note that I have used adjusted earnings per share of SEK 2,35 rather than the reported earnings. Elekta reported a net loss in fiscal 2026, but this was primarily caused by large non-cash impairments and write-downs following a comprehensive review of the balance sheet by the new management team. These accounting charges reduced reported earnings but did not affect the company’s cash generation or its ability to repay debt. Since the purpose of this metric is to assess how easily a company can repay its debt from its underlying earnings, I believe adjusted earnings provide a more representative picture of Elekta’s financial strength. While the debt-to-earnings ratio is slightly above my preferred threshold, I do not consider the debt to be a significant concern. Management has made reducing net debt a clear priority, and the company has already begun lowering its debt through stronger cash generation. If the turnaround plan succeeds and earnings grow as expected over the coming years, the debt-to-earnings ratio should decline further, strengthening the balance sheet over time.

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Risks

Competition is a risk for Elekta because the market for radiotherapy solutions, while highly specialized, is becoming increasingly competitive. The industry is dominated by a small number of global players, with Siemens Healthineers through its Varian business being Elekta's largest competitor. Varian offers a broad portfolio of radiotherapy equipment, software, and services that closely overlaps with Elekta's product offering. At the same time, several smaller companies compete in specific product categories such as radiosurgery, brachytherapy, MRI-guided radiotherapy, and oncology software. In addition, local manufacturers, particularly in China, are becoming increasingly competitive and are beginning to expand beyond their domestic markets. As a result, Elekta faces competition from both established global leaders and emerging regional players. Competition can affect Elekta in several ways. One risk is pricing pressure. Radiotherapy systems are large capital investments for hospitals, and purchasing decisions often involve competitive tender processes where multiple vendors compete for the same contract. If competitors lower prices to win new business, Elekta may be forced to offer discounts to remain competitive, which could reduce margins and profitability. This risk is particularly relevant in emerging markets, where healthcare budgets are often more constrained and price plays a larger role in purchasing decisions. Another risk is technological competition. Radiotherapy continues to evolve rapidly, with advances in imaging, artificial intelligence, adaptive radiotherapy, treatment planning, and software integration. Elekta has historically been an innovation leader and continues to invest heavily in research and development. However, competitors are investing aggressively as well. If another company develops technologies that deliver better clinical outcomes, improve workflow efficiency, or lower treatment costs, hospitals may increasingly favor those solutions when replacing or expanding their radiotherapy equipment. Given that hospitals typically replace these systems only every ten to fifteen years, losing a contract today can reduce revenue opportunities for many years. Competition from Chinese manufacturers also represents an emerging risk. Companies such as United Imaging have established strong positions in China and are gradually expanding into other regions. Management expects competition to intensify across emerging markets such as Latin America, India, Indonesia, and parts of the Global South, where local competitors often have cost advantages and governments may favor domestic suppliers. Although Elekta currently holds a strong position in many emerging markets, increasing competition could make it more difficult to maintain market share and pricing power over time. Finally, competition extends beyond treatment machines themselves. Hospitals increasingly evaluate complete oncology ecosystems that integrate imaging, treatment planning, workflow management, and long-term service support. While Elekta has strengthened its offering through partnerships with companies such as Philips and GE Healthcare and continues to expand its software platform, competitors are pursuing similar strategies. If Elekta is unable to keep pace with technological innovation or deliver integrated solutions that meet customers' evolving needs, it could lose market share despite its strong installed base and long history of innovation.

Regulation is a risk for Elekta because the company operates in one of the most highly regulated industries in the world. Every radiotherapy system, software platform, and treatment solution must meet strict regulatory requirements before it can be sold or used in clinical practice. These requirements are designed to ensure patient safety and treatment effectiveness, but they also make product development more complex, time-consuming, and expensive. As regulations continue to evolve, Elekta must continuously invest significant resources to maintain compliance across all the markets in which it operates. One important regulatory risk relates to product approvals. Before launching a new treatment system or major software upgrade, Elekta must obtain approvals from regulatory authorities such as the U.S. Food and Drug Administration (FDA), European regulators under the Medical Device Regulation (MDR), and similar agencies around the world. These approval processes can take years and often require extensive clinical testing and documentation. If approvals are delayed or additional data is requested, product launches may be postponed, allowing competitors to strengthen their market positions or delaying revenue growth. Regulation can also increase development costs. As medical device standards become more demanding, Elekta must invest heavily in clinical validation, product testing, quality management systems, cybersecurity, software documentation, and post-market surveillance. While these investments help maintain the company's strong reputation for safety and reliability, they also increase operating costs and can reduce profitability if regulatory requirements become more burdensome over time. Another important risk is reimbursement and healthcare policy. Although radiotherapy is widely recognized as one of the most cost-effective cancer treatments, hospitals ultimately depend on government funding, public healthcare budgets, or private insurance reimbursement when purchasing new equipment. Changes in reimbursement policies, healthcare budgets, or public spending priorities may cause hospitals to postpone investments in new radiotherapy systems or reduce capital expenditures. Because Elekta sells large, high-value treatment systems, even temporary delays in hospital investment decisions can affect order intake and revenue growth. Finally, Elekta operates globally and must comply with different regulatory frameworks across more than 120 countries. Changes in trade regulations, local medical device requirements, data privacy laws, cybersecurity standards, or environmental regulations can increase compliance costs and add complexity to the company's global operations. While Elekta has decades of experience navigating these regulatory environments, changes in legislation or more demanding compliance requirements could slow product launches, increase costs, or reduce the company's flexibility in serving certain markets.

Macroeconomic factors are a risk for Elekta because, although demand for cancer treatment is relatively stable, hospitals and healthcare systems often face financial pressures during periods of economic uncertainty. Radiotherapy systems represent significant capital investments, and hospitals typically plan these purchases years in advance. If governments, healthcare providers, or private hospital operators experience budget constraints due to inflation, higher interest rates, or weaker economic growth, investments in new equipment may be delayed even though the underlying need for cancer treatment remains unchanged. This can affect Elekta's order intake and revenue growth. One important macroeconomic risk is pressure on healthcare budgets. Many of Elekta's customers are public hospitals that depend on government funding. During periods of fiscal tightening, governments may prioritize day-to-day healthcare spending over large capital investments, causing hospitals to postpone replacing or expanding radiotherapy equipment. Even in private healthcare systems, higher financing costs and economic uncertainty can lead hospitals to delay investment decisions. Because Elekta sells high-value treatment systems with long sales cycles, even relatively small delays can have a noticeable impact on financial results. Inflation also represents a risk for Elekta. The company's products contain specialized components such as tungsten, microchips, and other advanced materials, while global logistics and manufacturing costs also influence production expenses. If the cost of these inputs increases faster than Elekta can raise prices or improve operational efficiency, profitability may come under pressure. Management has emphasized pricing discipline and operational improvements as important tools to offset higher input costs, but there can be periods where cost inflation temporarily affects margins. Another macroeconomic challenge is the shortage of healthcare professionals. Many countries face a growing shortage of radiation oncologists, medical physicists, and radiotherapy technicians at the same time as cancer incidence continues to increase due to aging populations. Even if hospitals have sufficient funding to purchase new equipment, limited staffing can reduce treatment capacity or delay the adoption of new technologies. This may slow demand for advanced radiotherapy systems despite favorable long-term market fundamentals. Finally, Elekta generates a significant share of its revenue outside Sweden and operates in more than 120 countries. As a result, changes in exchange rates can affect reported revenue, earnings, and cash flow when foreign sales are translated into Swedish kronor. Currency fluctuations can also influence the competitiveness of Elekta's products in different markets and affect the cost of sourcing components from global suppliers. While these movements do not typically change the underlying demand for radiotherapy, they can create volatility in the company's financial results from year to year.

Reasons to invest

Growing order quality is a reason to invest in Elekta because the company is improving the link between orders, revenue, and future cash flow. Historically, Elekta’s order backlog grew faster than revenue, which made reported order intake a less reliable indicator of future sales. Management has now tightened the criteria for what can be included in the order backlog, requiring greater certainty that orders will actually convert into revenue within a reasonable timeframe. This has temporarily reduced reported order intake, but it should make the remaining backlog more valuable and more predictive. Elekta ended fiscal 2026 with a book-to-bill ratio of 1,04, meaning orders exceeded sales, despite stricter order acceptance rules and softer activity in some emerging markets. This matters because Elekta operates in a market with strong long-term structural demand. Cancer incidence continues to rise as populations grow and age, while cancer survival rates are improving, meaning more patients require long-term care. Radiotherapy is one of the most cost-efficient forms of cancer treatment and is relevant for a large share of cancer patients, yet access remains underdeveloped in many parts of the world. This creates a long runway for demand, especially in markets where radiotherapy capacity is still far below what healthcare systems need. Another reason order growth could improve is Elekta’s product cycle. Newer solutions such as Evo, Iris, Unity, and Elekta ONE are designed to help clinics treat more patients with greater precision and fewer treatment sessions. This is important because many hospitals face staff shortages and need more productive treatment workflows. If Elekta can help customers deliver advanced radiotherapy in shorter treatment slots with fewer resources, its products become more attractive from both a clinical and financial perspective. The U.S. represents a particularly important opportunity. Elekta is underrepresented in the U.S. relative to the size and profitability of the market, and management has made gaining share there a clear priority. Reimbursement pressure on traditional radiotherapy creates an incentive for clinics to shift toward more complex treatments such as SBRT and adaptive radiotherapy, where Elekta believes it has a strong offering. Management has already highlighted strong momentum for Evo and Iris in the U.S., and if those orders convert into installations, they should support revenue growth over the coming years. China is another important market. Elekta has a strong position with roughly 40% market share, and the Chinese radiotherapy market is recovering after a weaker period. Management expects continued growth as the country remains underpenetrated in radiotherapy capacity, with a large gap between the current installed base and long-term treatment needs. Elekta’s local manufacturing, localized product offering, partnerships, and large installed base should help the company defend its leadership while benefiting from market growth. Europe also offers a meaningful replacement opportunity. A large number of installed linear accelerators are reaching an age where hospitals need to consider replacement, and management sees Evo as well positioned to capture this cycle. Because Elekta already knows where many of these older systems are installed, the company has a clear commercial opportunity to target upgrades and replacements with newer adaptive radiotherapy solutions. Looking ahead, growing order quality and improving order momentum could become an important driver of Elekta’s turnaround. The company is not simply trying to report higher orders at any cost. Instead, management is focusing on profitable orders that are more likely to become revenue, while also improving pricing discipline and avoiding low-quality deals.

Innovation is a reason to invest in Elekta because the company operates in a technology-driven medtech market where better products can improve clinical outcomes, increase hospital productivity, and support long-term growth. Radiotherapy has evolved from traditional treatments with many sessions into more precise, image-guided, and adaptive treatments that can deliver higher doses in fewer visits. This matters because hospitals need to treat more cancer patients while dealing with staff shortages and cost pressure. Elekta’s innovation strategy is focused on solving exactly that problem by helping clinics deliver more advanced radiotherapy in a faster, simpler, and more scalable way. A key part of Elekta’s innovation is adaptive radiotherapy. In simple terms, adaptive radiotherapy allows clinicians to adjust treatment based on what the tumor and surrounding organs look like at the time of treatment, rather than relying only on the original treatment plan. This can improve precision and give doctors more confidence when delivering higher doses in fewer treatment sessions. If treatments can move from many sessions to only a few sessions for certain cancer types, hospitals can treat more patients with the same equipment while patients spend less time going back and forth to the clinic. This makes innovation valuable not only from a clinical perspective but also from an economic perspective. Elekta is also bringing adaptive capabilities across its broader linear accelerator portfolio. This is important because advanced adaptive radiotherapy has historically been limited mainly to large academic hospitals with highly trained staff and significant resources. Elekta’s goal is to make these advanced treatments easier to use in everyday clinical practice. Products such as Evo, Iris, and future motion management tools are designed to improve imaging, support faster decision-making, and help clinicians deliver complex treatments within standard treatment slots. If Elekta succeeds, it can expand the market for advanced radiotherapy beyond the most specialized centers. Another important innovation is Elekta Unity, the company’s MR-Linac system, which combines magnetic resonance imaging with radiation delivery. The advantage of this technology is that clinicians can see soft tissue tumors more clearly during treatment and adjust therapy with greater precision. Historically, the challenge with Unity has been complexity and lower productivity, but Elekta is now working to improve treatment speed and customer return on investment through Unity Pro. By reducing treatment times and enabling more patients to be treated each day, Elekta can make MR-guided radiotherapy more commercially attractive for hospitals. Elekta’s innovation strategy also appears more focused than in the past. Management has acknowledged that the company previously invested too broadly and has now made clearer choices about where to allocate research and development resources. The company expects to continue spending around 10% of revenue on R&D, which is a meaningful level, but with more discipline and a stronger focus on areas that matter most to customers. These include productivity, treatment precision, ease of use, serviceability, software integration, and return on investment for hospitals.

Service and software are reasons to invest in Elekta because they provide recurring, high-margin revenue that makes the business more predictable and profitable over time. Elekta does not only sell radiotherapy machines. Once a machine is installed, it typically remains in use for 10 to 15 years and requires ongoing service, maintenance, upgrades, software, and technical support. This creates a business model that is similar to a razor-and-blade model, where the initial equipment sale is followed by many years of recurring revenue. Service revenue is especially attractive because hospitals strongly prefer to have their highly complex radiotherapy equipment maintained by the original manufacturer. These machines are mission-critical, and downtime can disrupt cancer treatment schedules. As a result, customers usually want a service partner that understands the equipment, has access to the right parts, software, data, and technical expertise, and can keep the system running with high reliability. In mature markets, Elekta has service attachment rates close to 100%, and management believes there is still untapped potential to increase attachment rates in developing markets. This creates an important source of predictable revenue. Service contracts are typically renewed regularly, and many include inflation-linked price increases. Management has also become more disciplined in avoiding very long service contracts when annual renewals are more attractive, because yearly renewals give Elekta better opportunities to adjust pricing as costs increase. Since service agreements are high-margin and recurring, even modest service growth can have a meaningful impact on profitability and cash flow. Software is another important part of the investment case. Modern radiotherapy increasingly depends on software for treatment planning, imaging, workflow management, patient information, quality assurance, and adaptive treatment. Elekta is expanding its software offering through Elekta ONE, oncology information systems, treatment planning tools, AI-supported imaging, remote collaboration, and Software-as-a-Service models. This makes the company less dependent on one-time equipment sales and increases the share of revenue that comes from recurring software contracts. The shift toward Software-as-a-Service is particularly attractive because it gradually moves revenue from upfront license sales toward periodic fees. This can make revenue more stable and improve visibility over time. It also deepens the customer relationship, because software becomes embedded in the daily workflow of oncology departments. Once doctors, physicists, and technicians rely on Elekta’s software to plan treatments, manage patient data, and coordinate clinical workflows, switching to another provider becomes more difficult and disruptive. Service and software also strengthen Elekta’s moat. As the company adds more remote service, predictive maintenance, software upgrades, and connected workflows, it becomes harder for third-party service providers to compete. Management has highlighted that older third-party service models are becoming less attractive as machines become more software-driven and remote access becomes more important. If Elekta can provide better uptime, proactive maintenance, and upgrades that only the original equipment provider can deliver, customers have a stronger reason to stay within the Elekta ecosystem. Another important point is that service revenue grows with the installed base. Every new machine Elekta sells creates a potential long-term service and software relationship. This means that growth in equipment sales can create future recurring revenue, and as the installed base expands, the company should benefit from a larger foundation of high-margin service income.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an adjusted EPS of 2,35, which is from fiscal year 2025. I have selected a projected future EPS growth rate of 13%. Finbox expects EPS to grow by 13% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 26, which is twice the growth rate. This decision is based on Elekta's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be SEK 51,27. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Elekta at a price of SEK 25,63 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 2.464, and capital expenditures were 120. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 84 in our calculations. The tax provision was 380. We have 382,1 outstanding shares. Hence, the calculation will be as follows: (2.464 – 84 + 380) / 382,1 x 10 = SEK 72,23 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Elekta's Free Cash Flow Per Share at SEK 6,13 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is SEK 88,37.

Conclusion

I believe Elekta is an intriguing company with a strong new management team. The company has built its moat through its technological expertise, installed base, integrated ecosystem, and leading positions in highly specialized radiotherapy markets. ROIC has been lower than I would ideally like to see, primarily due to weaker execution, lower profitability, and the significant investments required to maintain Elekta's technological leadership. However, if management successfully executes its turnaround plan, improves margins, and benefits from growing recurring service and software revenue, I believe ROIC has the potential to consistently exceed 10% over time. Elekta has consistently generated healthy free cash flow, with record cash generation in fiscal 2025 and 2026 driven by its growing installed base, recurring service and software revenue, and improving operational execution. As profitability recovers and recurring revenue continues to expand, free cash flow is expected to increase further over the coming years. Competition is a risk for Elekta because the company competes with large global players and increasingly capable regional competitors in a market where pricing, innovation, and clinical outcomes are critical. If Elekta fails to maintain its technological leadership or pricing power, it could lose market share and profitability. Regulation is a risk because the company operates in a highly regulated industry where product approvals are lengthy and compliance requirements continue to increase. Delays in approvals, changing reimbursement policies, or stricter regulations could increase costs, postpone product launches, and slow revenue growth. Macroeconomic factors are also a risk because economic uncertainty, tighter healthcare budgets, and inflation can cause hospitals to delay investments in new radiotherapy equipment. Higher input costs and shortages of healthcare professionals may also pressure profitability and slow the adoption of new technologies. Growing order quality is a reason to invest because management is prioritizing profitable, high quality orders that are more likely to convert into revenue and cash flow. Combined with strong structural demand for radiotherapy and new product launches, this should support more predictable and sustainable long term growth. Innovation is another reason to invest because the company is developing technologies that improve treatment precision while helping hospitals treat more patients more efficiently. If Elekta successfully commercializes its next generation of adaptive radiotherapy solutions, innovation should support stronger growth and reinforce its competitive position. Finally, service and software are compelling reasons to invest because they generate recurring, high margin revenue that makes the business more predictable and profitable over time. As the installed base grows and more customers adopt software subscriptions, these recurring revenues should become an increasingly important driver of earnings and cash flow. I believe there are many things to like about Elekta, and if the new management successfully turns the business around, buying shares at the Ten Cap price of SEK 72 could prove to be an attractive long term investment.

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