You can wait for your pitch | BeActivist

You can wait for your pitch

A couple weeks ago, I stumbled on Healtstream Inc (HSTM). The stock was significantly going down as the quarter’s results didn’t meet the expectations Sometimes, sharp drops make great buying opportunities. It’s up by 15% since then. So, I had a look at the company's profile.

healthstream

HealthStream provides workforce software-based training solutions for healthcare organizations (71% of revenues), patient experiment survey solutions (12% of revenues) and a platform that manages medical staff credentialing.  

Negative

  • The revenues from the first 2 solutions (training and survey) are down; they are essentially buying growth. As the CEO said:  "The second half of 2016 has been very busy with three acquisitions”.
  • Depreciation expenses are significant (as compared to net income).
  • The price/cash flow ratio is rather high, 30+ times (it's expensive).

Positive

  • They expect their operating incomes for 2017 to increase by 50% to 65% as compared to 2016 and the consolidated revenues to grow by 10%-14%.
  • The company has a good balance sheet and good cash reserve.

Like Warren Buffett says:  “The stock market is a no-called-strike game. You don't have to swing at everything — you can wait for your pitch.” I don’t need to have 10 new good companies per year to get good returns. So, I’ll pass for now as I don't see in HealthStream a great opportunity.