Joshua Hayes'  Instablog

This Medical Computer Software Company Is Under Strong Accumulation of Mutual Funds

 

Medassets Inc. (MDAS) is a Alpharetta, Georgia provider of revenue cycle and spend management software for hospitals and other healthcare providers that is seeing strong demand for its product and for its common stock shares. Let’s look at the fundamentals of this company (the meat and bones) to see why this mutual fund demand is so strong.

 

The EPS of MDAS started to turn down in 2006 and that lasted until early 2008 when it finally started to turn around. For the past five quarters, EPS has been growing at 10%, 175%, 999%+, 999%+, and 0%. During the past eight quarters sales growth has been 13%, 32%, 46%, 39%, 42%, 54%, 55%, and 34%. While it is obvious that the EPS and sales are slowing in the most recent quarter, YOY EPS estimates for 2009 and 2010 still see an increase of 7% and 26% respectively.

 

The EPS and sales growth is not all that is strong fundamentally with this company. With an EPS Growth Rate of 49% and a Return-On-Equity of 10% margins are strong on the sales. Cash flow is a very strong $.77 per share compared to recent earnings of $.11 for the quarter ended March 2009. About the only problem I can see with these numbers is that the company has 59% of debt to shareholder equity but in the long-term that is extremely manageable.

 

These strong numbers, along with a strong outlook in the Computer Software-Medical group, is definitely part of the reason that management still owns 45% of the shares outstanding and mutual funds own 29%. The smart money is very long MDAS which is always excellent to see in recent IPO’s (2007). The 29% ownership is a result of fund increases the past four quarters from 53 to 63 to 68 to then a whopping 82 funds. If not for the severe bear market from late 2007 to November 2008 (or March 2009, depending on what index), I am sure the price of this stock would be much higher.

 

Not only are growth funds getting long this stock but some value funds have taken a position in this stock. This is more-than-likely justified by the low P/E ratio of 28 which is well in the lower range of the five-year 17-171 range that it has been in. Value and growth both have a reason to get long this stock.

 

Taking a look at Investor’s Business Daily, to confirm the numbers, MDAS has an EPS rating of 92 (top 8% of all stocks), a Relative Strength rating of 77, a Group RS rating of 69, a Sales-ProfitMargin-ROE rating of A, an Acc/Dis rating of A-, a Composite rating of 98 (top 2% of all stocks), a Timeliness rating of A, an Earnings Stability rating of 73 (1 is the best so this is weak), and a Mutual Fund Sponsorship rating of D (bear market has made all growth funds poor). Overall these are very strong numbers and with the addition of other strong stocks in the group like SXCI, CPSI, CERN, QSII, and MDRX there is not much to not like about this stock.

 

Looking at the technical pattern of the chart, MDAS is making a very strong price move off recent support of the pivot point area of the April breakout. Sadly volume is not accompanied with this move but the good news is that on the lower window pane of the chart you can see that BOP is still max-green (the best there is-100) and moneystream is hitting a new high before price (positive divergence). You can also see that from the April 2008 lows that the Relative Strength line (white line bottom window pane) is in a very bullish uptrend compared to price (positive divergence). My MACD and TSV (MACD not shown, TSV is blue line in the middle) are both above the zero line confirming the strength in price.

 

The most important thing on the chart, to me, is the old highs of about 18.75-18.80. I would love to see this stock do one of two things to get me long. I want it to either move sideways for a few weeks and eventually get lined up with the 50 day moving average and either bounce off of it on strong volume or bounce off of it and breakout to a new 53-week high on strong volume (I buy strength like Jesse Livermore; not weakness). If it can do one or the other and keep that max green BOP, I will make it a large long. If BOP is not max-green and the breakout is not proper, it will not be that big.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclosure: at the time of publication Joshua was long MDRX and did not have a position in MDAS, SXCI, CPSI, CERN, and QSII.