Einhorn Shorts AthenaHealth; A Look At The ‘Infamous’ MS Report

Einhorn Shorts AthenaHealth; A Look At The ‘Infamous’ MS Report

Greenlight Capital chief David Einhorn has been arguing that we’re in the middle of another tech bubble like the one that rocked Wall Street fifteen years ago, but at the Ira Sohn Investment Conference he finally got into specifics, revealing one his short positions: AthenaHealth, Inc (NASDAQ:ATHN).

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It was clear from the presentation that Einhorn doesn’t think much of AthenaHealth, Inc (NASDAQ:ATHN) CEO Jonathan Bush, editing together embarrassing videos of him and questioning how much he understands the buzzwords that he uses, but the main argument is simply that AthenaHealth is a high-risk, low-return venture. It’s spending a lot of money developing a new product for a space (inpatient services) that it currently has no presence in, and even if it manages to build that market share the business model lacks earnings leverage. Einhorn thinks that an 80% drop in the company’s stock price is reasonable.

Einhorn criticizes Morgan Stanley over AthenaHealth PT

Einhorn specifically called out a Morgan Stanley (NYSE:MS) report that set a $192 price target for AthenaHealth, Inc (NASDAQ:ATHN), representing a 42% upside at the time, and put the bull case at $301 per share. Morgan Stanley analyst Ricky Goldwasser rated AthenaHealth Overweight even though it already had a three digit PE multiple on the basis that growing awareness among CIOs would translate to market share down the road. But if the company’s Enterprise Coordinator doesn’t catch on (and Einhorn believes that competitor Epic will dominate the market) there isn’t much else to fall back on.

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MS athena PT 0514 Einhorn

Even if Einhorn is right, individual investor may want to stay away

AthenaHealth, Inc (NASDAQ:ATHN) was already off its recent high before Einhorn’s presentation and it has dropped more than 11% since then, but that doesn’t mean retail investors should follow Einhorn into his short position.

“Though we believe that Mr. Einhorn is largely correct in his big picture view of the challenges facing ATHN, we believe that there are still several positive near-term catalysts for the company,” writes RBC analyst David Francis in a research note published on May 6th 2014.

Francis argues that a combination of pent-up demand for its systems at the low end of the physicians market, announcements of new enterprise customers (even if the deals later turn out to have slim margins), and new developmental partners for its Enterprise Coordinator product could give AthenaHealth, Inc (NASDAQ:ATHN)’s stock price a near-term jolt. Greenlight Capital can ride out the ensuing volatility until the stock settles at a more reasonable valuation, but individual investors might not be able to hang on that long.

Francis rates AthenaHealth, Inc (NASDAQ:ATHN) Sector Perform, recommending that investors sit this one out as high volatility is likely to continue.

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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