3 Warning Signs to Watch for Athenahealth, Inc.

By Markets Fool.com

2014 wasn't a great year for athenahealth shareholders. So far, this year hasn't been impressive either. The company announces its 2014 fourth-quarter results later this week. Will the stock continue to muddle along? Here are three warning signs to watch for that could answer the question with a "yes."

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Athenahealth CEO Jonathan Bush. Source: athenahealth

1. Growing pains
In October, athenahealth CEO Jonathan Bush referred to the company's "growing pains." Those growing pains were in part caused by significant growth in headcount. Athenahealth has been on a hiring spree with expansions in Atlanta and San Francisco.

While athenahealth met expectations in the third quarter, those results failed to dazzle investors. The reality is that the company could have topped earnings estimates were it not for higher operating costs. Increased staffing costs played a major role in these higher overall costs. How athenahealth fares when fourth-quarter results are announced could depend heavily on managing these growing pains.

2. Lagging leads
Astute observers couldn't miss Bush's passing reference during the third-quarter earnings call to another type of growing pain. In this case, the problem was with athenahealth's channel partners not producing the level of sales leads that the company expected.

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The issue seemed to be primarily with McKesson . The large healthcare products distributor is still in the midst of assimilating the acquisition of PSS World Medical. Jonathan Bush believes that this consolidation effort is causing McKesson's sales force to focus less on pushing athenahealth's products.

However, Bush stated that leads were just "a little behind budget." And he indicated that the underlying problem was only temporary. However, lower-than-desired leads in one quarter can translate to lower-than-expected sales in the next quarter. We'll soon find out how temporary this other growing pain actually is.

3. Unease with the "Es"
Athenahealth looks solid on several fronts, but the company clearly has some problems with the two "Es" -- Epocrates and Enterprise Services. Revenue from Epocrates-related products continued to decline in the third quarter. The hoped-for turnaround is taking much longer than expected.

Bush referred to Enterprise Services as "bipolar" in the third-quarter earnings call. By that, he meant that bookings can be somewhat hit or miss. The nature of the Enterprise Services market is such that how the segment performs usually isn't definitively known until the very end of the quarter.

Of the two, Enterprise Services is more important to athenahealth's overall results. If the up-and-down tendency for this business ended the fourth quarter on a down note, expect the company's results to be negative also.

Expectations
Despite a few warning signs last quarter, athenahealth maintained its full-year 2014 revenue and earnings guidance. Analysts expect fourth-quarter earnings between $0.36-$0.42 per share, with the consensus at $0.39 per share. Revenue is expected to come in at $207.94 million.

While more problems in any of these three areas could hurt athenahealth's share prices, there are reasons investors might have positive expectations. The company has experienced solid growth with itsathenaCollector, athenaClinicals, and athenaCommunicator products. If that growth gained strength last quarter, it could be enough to help athenahealth's stock resume its winning ways of the past.

The article 3 Warning Signs to Watch for Athenahealth, Inc. originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. He likes athenahealth but thinks the stock's near-term future could be cloudy. The Motley Fool recommends athenahealth and McKesson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.