athenahealth, Inc. (ATHN) has surged following the latest earnings surprise. With analysts raising estimates across the board, this stock moved to a Zacks #1 Rank (Strong Buy).
Growth rates are excellent, but given the valuations this could be more of a short-term trading opportunity than an investment.
Company Description
athenahealth provides cloud-based business services for physicians. Services help keep clinic records, keeping costs lower versus managing massive paper files.
Revenues Looking Healthy
On Jul 21 athenahealth reported a 33% increase in second-quarter revenue to $77.9 million. Margins were expanding as well, which led to net income of $7.9 million.
After some adjustments, earnings worked out to $0.14 per share, 3 cents better than expected. That marked the company’s fourth consecutive earnings surprise.
Raising the Bar
In the same press release athenahealth raised its full year guidance for this year. The company’s forecasts came in ahead of the market’s, so analysts quickly raised their outlook.
The full-year Zacks Consensus Estimate for 2011 is up a nickel to $0.55. Next year’s rose a dime to $0.85. Those moves came on 12 and 22 upward revisions respectively, with no downward revisions. Growth rates are now projected at 49% and 55%.
Lofty Valuations
If you are looking for a value play, you need to look elsewhere. Shares are trading near 50 times the 2012 estimate, which leaves them with a PEG ratio of 1.8 times. The price to book is at 11 and the price to sales is over 7 times. So, to play this one, you have to be just ride the upward estimate revisions and be ready to jump ship once that slows.
The Chart
A big part of those high valuations has to do with the huge surge in share price after the earnings news. Take a look at this chart. Now, there still could be some up side as analysts keep upping their expected earnings figures, but once that slows this could drop quickly. So, it is a short-term buy, which is what the Zacks Rank targets.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
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