this is a story stock and story stocks make the most difficult shorts. it makes no sense to try and rationalize based on earnings quality b/c even if earnings quality was pristine, the stock would still be outrageously valued. The whole Street rational is that ATHN is a SaaS company and that therefore traditional metrics like P/E are not relevant, only sales multiples.
I think the only way ATHN works as a short is if it becomes 100% clear to even the dumbest person that they will not penetrate the hospital market in a meaningful way. They have been able to score big deals in the physician market (Ascension) and while I have my doubts about the true profitability of these big deals, it just doesn't matter because its the announcements that drive the valuation. One can not underestimate the way that the CEO has managed the Street. He has done an absolutely amazing job and while to the cynical (me) he sounds like a circus barker, those who matter (the big institutions) apparently love the guy and they are believers. And believe me, big institutions are much dumber than actual industry people-they rely almost 100% on what management tells them which is where the CEO really shines. If the short case ever begins to be apparent there is so much air under the story, ATHN will be a safe short at $80 than it is at $130
from reading street research, they basically ignore gaap and only focus on non gaap, which excludes the one-time gain as well as amortization and stock-based compensation. basically athn gets a pass to make up its earnings every quarter. pretty good deal. it really is interesting that the stock trades at over 100X pro forma, but the pro forma excludes some major recurring expenses like stock based compensation. the analysts justify the valuation by saying it's cheap at only 5X sales, but what is really hard to understand for me is numbers are numbers. The revenue growth is 21% and slowing and the earnings quality, including capitalized software, is less than great so I am not sure why someone should be willing to value this company so much higher than another company with identical numbers just because ATHN is supposedly a SaaS company. The CEO is very clever and has done a great job convincing the analysts that his company is different from every other company
there is a $21.0 m Other Income shown in the income statement. I think I recall ATHN had an equity interest in a company that went public which maybe they sold some of the stock. It will be interesting to know whether this was already factored into analyst models.