Why athenahealth Shares Skyrocketed

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 software to the medical industry that helps with electronic health records and revenue-cycle management -- shot through the roof and gained as much as 23% after the company reported its third-quarter earnings results.

So what: For the quarter, athenahealth saw revenue rise by 43% to $151.5 million, aided in part by its acquisition of Epocrates, which added $13.4 million in revenue. Excluding this revenue, athenahealth grew organic revenue by 27% from the year-ago period. However, due to costs related to the acquisition, adjusted profit clocked in at just $0.29, $0.02 below Wall Street's expectations. Why then is athenahealth up so strongly? That would be because athenahealth stuck to the low end of its previous full-year earnings-per-share forecast of $1.05-$1.15 when the Street had been projecting just $1.03 per share in full-year earnings.

Now what: I fully understand that cloud-based revenue cycle management and electronic health records are the wave of the future for hospitals and clinics seeking to control costs and improve efficiency, but today's move from athenahealth seems egregiously overdone considering that it missed slightly on both its top and bottom line for the third quarter. Sure, its full-year EPS forecast is slightly above estimates, but it guided toward the low end of previous estimates and is now trading at roughly 123 times the low end of those estimates. I would personally like to see a lot more from athenahealth in the profit department before considering the stock a good value here.

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