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HealthStream: A Solid Long-Term Play

April 19, 2012 | About:

The best way to benefit from the potentially explosive growth of small companies is to spread your wealth among a few companies, betting that one or two will make up for losses or stalling from the rest. Small scale investors almost always miss out on the big wins that come from buying stock in small companies while prices are low. HealthStream (NASDAQ:HSTM) is still low but getting bigger all the time. Take advantage while you can.

A Stock to Watch

HealthStream is an online education provider for people in the health service industry. Online education may not seem like a great bet in general, especially as users get savvier and realize that learning online isn’t necessarily cheaper. But HealthStream has a significant advantage. They specialize in continuing education for x-ray, pharmaceutical and ultrasound technicians, a requirement of continued certification in those fields. They also offer courses in technology sales rep training.

You may not realize it, but the health care industry is continuously growing, even when the rest of the economy is in a downturn. Right now is the perfect time to invest in healthcare, because the baby boomer generation is entering the time of life when increased testing and medical care becomes necessary. As we age, we require a significant increase in health care services. The baby boomer generation is the largest generation in history, and hospitals, clinics, and private practice offices are preparing for the increase in demand.

That translates into an increasing demand for certified medical assistants, medical technicians of all kinds, and pharmaceutical techs. These positions are much quicker to obtain than other health care jobs. Many people are out of work due to the downturn and they are considering switching careers. The health care technician job market is growing, and within a year unemployed people can become specialists with skills that are in high demand. HealthStream is training those new employees as well as keeping certified health care techs up to date with continuing education. HealthStream offers something that the health care industry needs on a continuous basis, and it looks like the need is going to grow steadily.

In finance news, Forbes listed HealthStream as one of the top 15 hot small stocks to buy back when the stock was trading at under $13 per share just nine months ago. Now HealthStream is trading at over $20 a share, and that is down from the high of $22.55 on February 22 of this year. If we had been on the ball a year ago, we would be praising HealthStream as one of the biggest and best small stock investments of 2011.

So once again the little guys were left out of this big win. I’m catching on late to this particular trend, looking back at a 162% increase over 12 months and wondering where I was a year ago. This is not a new phenomenon. Hindsight is perfect, especially when you’re looking at the stock market. Usually, this is when I would recommend looking for another, similar stock to buy that hasn’t hit the upswing yet. But in this case, I’m suggesting a different tactic. Watch HealthStream closely and buy soon. Even if you see a drop in the next two or three months, I think in the next year HealthStream stock could easily double again.

The good news is that it’s not too late to jump on the HealthStream bandwagon. Being as high as it is now, you may be thinking things can’t get better. The truth is that things in the health care sector will only get better in the next decade. In the last quarter of 2011, HealthStream reported a revenue increase of 24% overall. The Learning business revenue was up 31% on the quarter.

HealthStream is offering hospitals, clinics and health care professionals of all kinds a way to keep their credentials and certifications up to date in an inexpensive and effective manner. Individuals can benefit from subscribing to their services, but even more exciting for their growth is the fact that hospitals subscribe and pay for their entire staff to have access to accreditation courses as well as research opportunities. And renewal rates are close to 100% from existing clients, which shows that they are doing something right.

On top of all that, their model is inexpensive to maintain – online updates – and the potential pool of clients and customers is huge and growing. It may seem like we’ve missed the growth spurt that HealthStream had, but it is likely that another health spurt is in the works. The jump to $22 per share was sudden, and we may see stock price fall to around $17 or $18 per share again within the next month. Then again, we may also see nothing but significant climbs.

Another huge piece of news from February was the whispers of a potential takeover. The most recent takeover in this market was SuccessFactors Inc., bought by SAP for 7.4 times estimated sales. If HealthStream is next in line, buying now seems like the best idea I’ve had all year.

And when you compare HealthStream to its top competitors, the price difference is stunning. Both SXC Health Solutions (SXCI) and Cerner (NASDAQ:CERN) are trading at over $70 per share. While Cerner may also be a good buy at the moment, its potential for giant leaps and bounds may have played out already. Wall Street is also happy with SXC Health and stocks seem to be rallying without fear for now.

But SXC Health isn’t as healthy as it appears, with a lot under the baseline that offsets their earnings over the past two quarters. No matter what, competition in this particular industry will not be a problem for HealthStream. They have a jump on the game and the market is so open right now that it is hard to see how a competitor could steal business.

For my money, HealthStream is a lesson is taking advantage right now so you have something fun and exciting to sit on. This is not a quick cash stock, for the moment, but even in the next year we may see growth that smaller investors don’t usually catch onto in time. Rather than wait to see another missed opportunity, I’m buying HealthStream now and holding until I am up significantly on my initial investment.

About the author:

Vatalyst articles are written by a team of independent traders from around the world. All of our articles provide actionable investing ideas you can use to make money.

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