Zachary Scheidt

Athenahealth: A Reluctant Short

I haven't heard the CEO speak, but can say from everything I have read that their company is strong. That's why I'm actually torn - believe in the company but not in the stock.

CGP: I'm not sure that this would be a positive catalyst. We've all see the "buy the rumor, sell the news" scenario played out and this could be a similar situation. Everyone is expecting another push for universal health records, and once we get it the traders move on to the next opportunity. Timing is the hardest part of this trade, but The danger appears to be imminent.

Thanks for the comments guys!
zachstocks.com

Athenahealth: Impressive Company, Dangerous Stock

good deal Mark - always enjoy your opinion as well...

Zach
zachstocks.com

athenahealth: Don't Curb Your Enthusiasm Just Yet

Well written and very thorough. I certainly have the utmost respect for your analysis...

I do not disagree with your assessment of the industry and the potential for extreme growth over the coming years. And my view of Athena is that they will certainly capture some of that growth.

However, we are not talking about a high PE based on the 11 cents in 2007 when the company first started turning a profit. The stock currently has a FORWARD looking PE of 47 based on 2009 earnings. This means that after 2009, the market is still expecting EXTREME growth out of this company.

Now if ATHN actually makes 77 cents a year this year it will represent 50% growth. I'm not willing to bet that this growth rate continues for too many more years. One primary reason is that competitors will quickly flock to a profitable business. ATHN may have solid relationships, but others can offer a similar product and begin to cut the price. If we are still in a difficult economy, you can bet physicians will listen to a competitor's presentation.

Finally, the market has been brutal to high-multiple growth stocks. This is true across many different sectors. At 20 times forward earnings this name would look very attractive to me, but at the current 47 I just think there is too much risk.

Please know - I respectfully disagree - but very much appreciate your analysis. Will be fun to watch this one and see how the picture evolves.

Zach
zachstocks.com

Athenahealth: Impressive Company, Dangerous Stock

DAJ - to be quite honest, I didn't include an expected value for the stock because the price would be quite disturbing...

If you assume analysts are correct in expecting $0.77 in earnings next year, and you assign a healthy 20 multiple which accounts for the strong growth that you mention, the stock price could be expected at $15.40

Now I know this is a very rough back of the envelope valuation, but it shows just how vulnerable the stock price could be. In the article I mentioned how I respect the company's growth and the service they provide. But growth at any price makes for some risky investments.

Another issue that has not been brought up yet is that of competition. If the medical software business becomes a very large and profitable sub-sector, you can bet that Salesforce.com (CRM), and many smaller competitors will be on the scene driving margins lower and making for a more efficient market.

So unfortunately, I'm sticking to my assumption of a sharply dropping stock - whether it hits $15 is debatable, but at $35, I believe the risk is very high.

Thanks for the comment!
Zach
zachstocks.com