A recent report from Harvard School of Public Health, Mathematica Policy Research, and the Robert Wood Johnson Foundation stated that in 2012 around 40% of physicians in office practices had basic EHR systems. That leaves a large number of doctors who have not yet implemented EHR technology.
Gauging the temperature
I suspect that there is risk for several of the EHR companies, but it’s due more to lofty valuations rather than a lack of customers to buy their products. One of this year’s biggest EHR gainers, athenahealth, now seems to be priced for perfection. Its forward price-to-earnings multiple stands at a sky-high 79. Any hint of a problem could result in a stock meltdown.
Most of the others also carry relatively pricey valuations. Cerner Corporation (NASDAQ:CERN) has a forward P/E of 30 with five-year annual growth projected at 18%. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) isn’t significantly better, with a forward multiple of 24 and estimated annual growth of 10.5%. Quality Systems has a forward P/E of 21, but analysts peg its yearly earnings growth at less than 10%.
Of the group, McKesson Corporation (NYSE:MCK) is the safest pick in my view. The company has a forward multiple of just over 13 and growth projected at 13% per year. McKesson focuses primarily on pharmaceutical distribution, which contributes a steady-but-boring revenue stream. Its technology division accounts for less than 3% of total sales — but more than 20% of the company’s earnings.
If you’re looking for a possible acquisition play, Quality Systems could be a good choice. The EHR vendor might be looking to sell out sometime in the near future after a change in its board lineup. If the company does put itself on the auction block, expect shares to surge. Health care technology is a market that can still get pretty hot.
The article These High-Flying Stocks Could Be Riskier Than You Think originally appeared on Fool.com and is written by Keith Speights.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.