Medical Devices

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What happened

Shares of Athenahealth, Inc. (NASDAQ:ATHN), a cloud-based healthcare service provider, jumped by as much as 20.8% in after-hours trading on Wednesday after the company issued a better-than-expected outlook for 2017. The stock has maintained that surge in Thursday's premarket trading.

So what

The key takeaway from Athenahealth's forward-looking guidance is that the company is forecasting that its total annual revenue could grow by as much as 21% next year to $1.33 billion. That upbeat estimate exceeds the Street's high-end revenue forecast for the company by roughly $20 million.  

Now what

The core driver behind Athenahealth's strong outlook heading into next year is the continued growth of its Athenahealth-branded services and Epocrates-branded services. The big-picture issue is that the move toward digitized healthcare records and point-of-care systems -- which was originally incentivized by the Affordable Care Act as a cost-saving measure -- has apparently taken root in the U.S. healthcare system, transforming Athenahealth into one of the fastest-growing companies in the sector. 

Is Athenahealth's stock now a screaming buy? While a potential 21% rise in annual revenue is certainly noteworthy, Athenahealth is also one of the most expensive stocks in the healthcare sector, with a forward price-to-earnings ratio of 42.7. Put simply, the market clearly expects Athenahealth to continue posting sky-high revenue growth for the foreseeable future, and that's not a sure thing in light of the forthcoming changes to the U.S. healthcare system that are expected to occur under President-elect Donald Trump.

George Budwell has no position in any stocks mentioned. The Motley Fool recommends athenahealth. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.