Tuesday, July 24, 2012

Healthstream ( Nasdaq - HSTM ) -- Market Share Keeps Expanding

Healthstream (HSTM $27.00) reported excellent on target Q2 results.  Earnings advanced 12% to $.09 a share despite 18% greater average shares outstanding.  The company sold stock earlier in the year.  Sales climbed 23% to $25.8 million.  The learning segment expanded 34%, accounting for most of the increase.  Healthstream also provides surveys and related research services, which experienced an unanticipated slowdown in the period.  The core learning segment is gaining as hospitals realize that computer based systems improve employee performance, reduced costs, and enhance compliance.  New subscriptions beat the company's target in the period.  Average order size expanded.  And backlog widened, laying the foundation for further gains in the future.  More high level content providers joined Healthstream's distribution system.  The company uses its platform to distribute that know-how to hospital employees. 

The long term outlook remains positive.  Healthstream controls about 50% of the U.S. hospital market.  That share is poised to keep expanding as more content providers are added and marketing efforts are enhanced.  New products are rolling out.  A joint venture with Norway based Laerdal Medical could provide substantial leverage.  Ultimately, Healthsteam is well positioned to help the U.S. medical industry improve productivity through computerized instruction and other automation technologies.  Expansion into related markets like surgery centers could reinforce growth.  International opportunities provide further potential.  The stock is trading at a high price in relation to earnings.  But Healthstream remains a small company with key advantages in an enormous industry.  Further appreciation is possible.

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