While investor interest in health care IT stocks remains high, along with the confidence levels of the sector’s management teams, Brett Jones, a senior analyst at Brean, Murray, Carret & Co., remains skeptical about whether the high multiples awarded to these stocks based on near-term growth prospects accurately portray the companies’ long-term growth opportunities.
“I am concerned that we’re assigning high multiples due to the near-term growth prospects, and people aren’t looking at what are these companies going to look like two or three years from now, potentially falling into a bit of a trap,” said Jones, who doesn’t believe the 20% EMR penetration level cited by many health care IT management teams to be correct. “I believe there are approximately 200,000 physicians that have an electronic medical record from one of the big primary EHR vendors, meaning that I think these are vendors that will meet the meaningful use criteria, and therefore we count those physicians as having adopted. When I do that, I’m coming up with a market penetration north of 40%.“
Despite his bearish outlook, Jones still sees opportunity for the ambulatory EMR providers, including Allscripts Healthcare Solutions (MDRX); athenahealth (ATHN) and Quality Systems (QSII).
“I believe we can see two years of good growth, and then they potentially stumble from there,” Jones said. “If that is the case, then when should we start to price that into the stocks?”
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