Medical software company MEDecision
MEDecision's flagship software product, the Collaborative Care Management suite, is a health-care payer management system. (Payers include government programs like Medicare and Medicaid, as well as commercial health-care insurers and self-insured corporations.) The system can process large amounts of claims data to create an electronic record for each patient, helping care providers identify patient risks and determine cost-effective interventions. The system also enables automatic approval of routine medical requests, which helps to reduce administrative costs. A data-analysis company owned by WellPoint
With such results, it should be no surprise that MEDecision is growing at a healthy pace. Revenues for the first nine months of 2006 were $33.5 million, up from $24.2 million in the year-ago period. However, the company continues to post losses, amounting to $6.4 million in 2006.
MEDecision has only about 300 potential customers, and that number could shrink further because of consolidation in the industry. To grow for the long term, the company will need to extend its product line or find other market segments -- both risky propositions.
MEDecision's customers are also significantly concentrated. HealthCare Services Corporation accounts for 27% of its revenues, while Horizon Blue Cross Blue Shield accounts for 22%.
What's more, with a market cap of about $150 million, MEDecision is selling for about three times revenues. Given all the risks the company faces, that's still a premium valuation -- which suggests that IPO investors' prognosis was spot-on.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 429 out of 17,109 participants in Motley Fool CAPS, the Fool's new stock-rating service that you can join for free.