RadNet, Inc. (RDNT) got hit hard on Tuesday after short seller Hunterbrook Capital published a report arguing that the company's soaring valuation rests on shaky AI hype rather than solid fundamentals.

RadNet operates a network of 407 outpatient imaging centers across the United States, providing mammograms, CT scans, X-rays, and other diagnostic services. It's a straightforward business, or at least it used to be.

From Imaging Centers to AI Darling

For years, RadNet traded below $15 as a conventional imaging provider. That changed around 2020 when management repositioned the company as a leader in AI-driven imaging, particularly for mammography, ultrasound, and X-ray diagnostics.

Wall Street loved the transformation. Shares climbed as high as $86, pushing the company's market capitalization above $6 billion—roughly three times its annual revenue. That's an aggressive multiple for what remains, at its core, a low-margin business.

"The company's stock has soared in value since its AI rebrand, trading at a much higher multiple than historic norms and competitors," the short report noted.

Where's the AI Revenue?

Here's where things get interesting. According to Hunterbrook's analysis, RadNet's AI offering is financially insignificant. The company's own filings show that less than 5% of revenue comes from its Digital Health segment.

Even more concerning, the report alleges that most of that growth appears driven by internal sales to RadNet's own imaging centers rather than genuine third-party adoption. If accurate, that means the AI narrative driving the valuation isn't translating into meaningful external revenue.

The Same-Center Sales Question

Hunterbrook also took aim at one of the key metrics analysts use to evaluate RadNet: same-center sales growth. This figure is supposed to show how existing locations are performing, stripped of growth from new acquisitions.

But the report claims RadNet has been playing with the definition of its footprint. According to an independent analysis conducted by Hunterbrook, the company has consolidated nearby imaging centers—closing locations within 15 minutes of other sites and effectively shifting patients rather than genuinely expanding volume.

When you account for this consolidation effect, organic growth looks far less impressive: around 2.5%-3% instead of the reported 6%-10%.

Recent Financial Performance

RadNet reported third-quarter adjusted earnings of 20 cents per share, slightly missing analyst expectations of 22 cents. Revenue came in at $522.87 million, beating the consensus estimate of $494.41 million.

The company raised its fiscal 2025 revenue guidance from a range of $1.93 billion-$1.99 billion to $1.985 billion-$2.025 billion, compared to the analyst consensus of $1.973 billion.

The Bigger Picture

Hunterbrook's thesis boils down to this: smaller companies are slapping "AI" onto their pitch decks and watching valuations soar, regardless of whether the underlying economics support it. Strip away the technology narrative, and RadNet looks like a conventional imaging provider operating with low margins and modest organic growth.

The market seems to be taking the report seriously. RadNet shares were trading down 7.40% at $67.21 at the time of publication on Tuesday.

MarketDash reached out to RadNet for comment but has not yet received a response.