Athena’s plan for tapping into the wide-open $27 billion healthcare IT market involves an online subscription service. Doctors sign up and pay a small portion of their bill collections in exchange for Athena handling the billing and record-keeping.
Athena has proved itself so good as a service provider the company has maintained a 97% renewal rate over the past five years. That translates into strong recurring revenues, which down the line should offer the earnings visibility Cramer and Wall Street analysts love so much.
But, unfortunately, right now, there isn’t a lot of good data about Athena’s earnings. But a little “Cramer calculus,” which included estimating the growth rate and gross margin going forward and “a whole bunch of smaller assumptions,” puts next year’s earnings per share at 74 cents.
That’s a multiple of 46 times forward earnings, according to Cramer. And while that might seem high at first glance, Athena is actually cheap if Cramer’s 42% growth rate is right. “As a former growth manager, I was always willing to pay a whole lot more than 46 times earnings for 42% growth,” Cramer said.
There is a blip on the radar, though. Athena’s oldest and broadest patent was rejected. The company has filed for reconsideration, but Cramer said there was a possibility this could become an issue. He’s confident, though, that Athena’s service and brand could balance out any intellectual property issues.
Coverage initiation from Merrill Lynch and Goldman Sachs, the banks that brought Athena to market, should send the stock higher. And Cramer said a bigger medical IT firm might want to snatch up Athena some time down the road. That, too, would be a boon for investors.
Athena has “so many reasons to go higher that I wouldn’t bet against it being the next great overlooked IPO,” Cramer said.
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