Why athenahealth Shares Jumped

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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 (NASDAQ: ATHN  ) , 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.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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Related Tickers

10/2/2015 4:00 PM
ATHN $137.30 Up +5.36 +4.06%
Athenahealth CAPS Rating: **