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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Related Tickers

9/30/2016 4:00 PM
ATHN $126.12 Up +2.05 +1.65%
athenahealth CAPS Rating: **