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 health-care "payment management solutions" provider Emdeon
So what: News that Blackstone
Now what: But here's the problem: Emdeon's not worth $3 billion. Not even close. I mean, at $1.4 billion in market cap, the stock already costs nearly 65 times what it earned last year. Even if you value the company on its free cash flow, the $94 million Emdeon generated in "cash profit" over the past year prices this stock at more than 14 times FCF today.
Now, a multiple of 14 might be a fair price if Emdeon achieves the 14%-plus growth targets that Wall Street has laid out for it. But 28 times free cash flow? Seems a bit rich to me, and it seems William Blair agrees. My advice: If Blackstone is crazy enough to offer $3 billion for your Emdeon shares, take the money and run.
What will come of Blackstone's buyout offer? Add Emdeon to your watchlist and find out.