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Quality Systems Inc. (NASDAQ:QSII) reported earnings late last week. Revenues came in well above consensus expectations as physicians continued to spend on technology. This spending is in spite of economic weakness and is certainly a good sign for this growing company.

The healthcare records management sector has gotten plenty of press over the last few months. At this point it looks like $16 billion of the new stimulus bill will be earmarked to help pay for updated electronic health records. There is some speculation that physicians who are reimbursed by Medicare will have to file forms electronically which could further increase the growth in this area.

While the earnings figures were relatively strong for QSII, the stock closed the day sharply lower as traders seem to be following the “buy the rumor, sell the news” mantra. Traders had bought the stock hand over fist in December as it became clear that stimulus measures would include a medical records program. But short-term traders can sometimes get impatient, and it looks like they are searching for alternatives as it will take some time for the stimulus dollars to reach QSII.

During the conference call, management noted that the company expects a strong benefit from the stimulus package. It may be that revenues are not impacted until late 2009 or even early 2010, but the additional business should come. Until that point, it still appears the company is able to grow at a steady clip regardless of economic conditions. Third quarter revenues (the company operates on a March fiscal year end) were aided by two acquisitions and investors should probably expect additional purchases in coming months. With a health cash balance, and virtually no short-term debt, the company is in an excellent position to acquire struggling competitors.

QSII trades at a published PE ratio of 26. The multiple is certainly higher than the market average, but is likely to accurately reflect the potential for strong growth in this industry. The stock pays a quarterly dividend of 30 cents which equates to a 3.2% dividend yield. When compared to Athenahealth (NASDAQ:ATHN) (which was featured here in late December), the stock trades at a much more attractive multiple. Now obviously ATHN has a stronger growth trajectory, but its stock price has much more risk than QSII.

With the most recent decline in the share price, QSII appears to be a solid long-term investment candidate. Macro forces should benefit the sector in coming quarters, and the added exposure will likely lead to multiple expansion. The company has a solid track record of growth and a management team that is talented at running and growing the business. I would be interested in picking this name up anywhere below $40.

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Disclosure: Author does not have a position in QSII.

Source: Quality Systems: Strong Quarter, Stimulus to Come