Accretive Health (AH) is one of my favorite growth stocks. The company does billing software for hospitals. Revenue and profits are growing very fast, and this is a stock I have at the top of my radar to buy. Why didn’t I get in earlier? Here’s why:
One Year Chart
Here’s AH’s one year chart. Note the strong profit growth along the bottom — this is a young gun in the stock market. Note on the right that Annual EPS Growth has been fantastic for the 2010-2012 period. 2010 was when AH had its IPO, so this is a young company that has room to grow.
What’s not in green in this chart is the P/E of 38. The P/E is a little high. The reason the P/E is high is because the smart money knows this is a great growth story. But to me 38 times earnings was too high to buy, because there were flaws in AH’s Earnings Table.
Earnings Table
The first negative here is Annual Profit Estimates have been trending down for two straight quarters.
Although AH beat by a penny last quarer, that estimate declined by two cents the quarter before. I wasn’t impressed.
Quarterly estimates show the next three quarters declined by at least two cents each. At 38 times earnings you really can’t lower estimates. Somebody was bearish on Accretive’s future business, that’s why these estimates fell.
Bottom Line
Although I have a lot of respect for Accretive Health, I didn’t feel it was a good investment to make for my clients. The stock was too high, and needed to come down to the $20-$22 level to get me to consider buying it — that was before today’s bad news. These charts and tables were done last week on March 21 (eight days ago). The news today has made me take an even more catious stance, and will no doubt bring these figures down. For now AH will stay on the radar — the company has got to raise quarterly estimates to get me in.
View the Fair Value here.View the Ten Year Chart here.
