Why athenahealth Shares Jumped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of athenahealth , a cloud-based provider of billing and clinical service to the health care industry, rose as much as 19% after the company announced a deal with Clinical Holdings, the physician services segment of Ascension Health Network.
So what: The deal, which according to research firm Leerink Swann includes 2,700 doctors, would be its largest in history, and could expand athenahealth by 10% and add $42.5 million in top-line annual revenue. Following word of the deal, research firm Piper Jaffray raised its price target on the company to $127 from $104 while keeping its "overweight" rating.
Now what: This is certainly a solid win for athenahealth, and there's little question that its cloud-based software represents one of the future pathways of medical practice management in the health care industry. However, I can't overlook what appears to be an egregiously overvalued company. Prior to the deal with Clinical Holdings, athenahealth's own management team was concerned about its full-year bookings growth. I'm not sold on the idea that one deal -- even its largest to date -- is enough to send this screaming past a forward P/E of 70! As a value-seeker, I'd suggest sticking to the sidelines in the meantime.
It's no secret that rising health care costs are a hotly debated topic. Even legendary investor Warren Buffett called this trend "the tapeworm that's eating at American competitiveness." To learn more about what transformations are under way in our health care system -- and how to potentially profit from this trend -- click here for free, immediate access.
The article Why athenahealth Shares Jumped originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Athenahealth. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.