Athenahealth (ATHN) was formed in 1997 by Jonathan Bush and Todd Park. It went public in 2007 for $18 per share and currently trades for ~$155 per share (~$6.2B market cap). That’s a whopping 760% return if you had invested in the IPO and ~27% annualized. What a return for shareholders during this period! The problem with ATHN is that while the stock price is always increasing, it doesn’t produce any profits. From 2008 to 2016 it has grown revenues at a ~30% annualized clip which is quite impressive, but during the time from it’s public debut in 2007 through the end of 2016 it has produced a grand total of $169 million in free cash flow and total net income of $123 million. It has an anemic operating margin of ~2.5% and revenues have recently begun to decelerate. Revenue growth has dropped from the high 20% range over the last 5+ years an average of 22% over the last 3 years and the last two quarters rose at 15% in Q2 and 11.3% in Q1. Quite a deceleration in revenue growth and with that deceleration I’m scratching my head why Mr. Market values ATHN at ~$6.2B and doesn’t care why it doesn’t produce any profits.

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