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NEW YORK (TheStreet) -- David Einhorn must have an Epic headache today.

The short-seller battling with electronic medical-records darling Athenahealth (ATHN) - Get Athena Technology Acquisition Corp. Class A Report suffered a blow late Thursday, when Athenahealth reported second-quarter earnings that beat Wall Street estimates by 10 cents a share and topped revenue estimates by $4 million at $185.9 million.

The fight over Athena's shares is several fights in one. The simple one is whether the shares, trading at more than 100 times even "adjusted pro forma" earnings estimates for this year, are unconventionally expensive.

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Of course they are -- just as Amazon (AMZN) - Get, Inc. Report, (CRM) - Get, inc. Report and Netflix (NFLX) - Get Netflix, Inc. Report have always been expensive, for all the predictive power that had.

The most important fight is whether health care is really moving in the direction Athenahealth CEO Jonathan Bush says it is -- toward leaner, smaller, nonhospital-based providers who will reform the $3 trillion industry from the grass roots up.

Athenahealth's shares popped $8 in after-hours trading following the earnings release before settling back to $128, just above where they had closed minutes before the report.

The stock has been all over the map Friday morning, however, dipping to less than $119 before rebounding to about $123, but this is not really a problem.

One primary issue, Jefferies analyst Dave Windley writes Friday morning, is concern that Athenahealth added just 1,151 providers for its electronic medical records service, about 300 short of expectations.

Actually, there's a straightforward explanation: Summit Medical Group was expecting to go live by June 30, but its 300-plus doctors and nurses are now targeting July 28. The enterprise software business is always a bit lumpy, but tends to smooth out over time.

Einhorn's Athenahealth short position hit the news in May, when he argued that Athenahealth would be wiped out by Epic Systems, a privately held company selling very expensive client-server based software to hospitals, which in turn try to induce affiliated doctors to use the hospitals' networks.

Athenahealth shares traded as low as $97.30 in the wake of Einhorn's talk, in which he said the stock might be worth as little as $14. Before his announcement, they were changing hands around $126.

But the Epic argument is exactly what Athena's quarter blasted out of the water. The quarter bolsters the idea that health care investing for the next five years will be primarily about finding companies, some as big as UnitedHealth Group (UNH) - Get UnitedHealth Group Incorporated Report, that are nimble enough to exploit Obamacare's incentives to minimize hospitalizations and cut costs.

Athena's numbers showed the number of doctors using any of its systems (for collections, electronic medical records, or running portals for doctors to communicate with patients) rose 26% in the quarter, to 43,858. But the real tell was the number of very large physician groups -- the ones that tell hospitals what they're doing, contra Einhorn, and are moving services to outpatient settings -- on that list.

Like Ascension Health, which has 4,000 providers and went live in the quarter. Or Health Management Associates, a 900-doctor unit of Nashville-based Community Health Systems (CYH) - Get Community Health Systems, Inc. Report.

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Or Summit Medical, the biggest practice in New Jersey and a company big enough to be overflowing Dun & Bradstreet's former corporate headquarters. They've used Athena for collections for a few years and are going live on its other products this quarter. I asked SMG's vice chairman -- who happens to be my doctor -- if Athena will get wiped out by Epic. He laughed. 

"I like doctor-driven health care and see Athena as the means of giving the docs the tools they need," said Ryan Champlin, an Athena client who's vice president of Fort Worth-based Cook Children's, a hospital that also runs a group purchasing co-op for 2,400 pediatricians. "In that world hospitals have to compete to earn the business of the docs."

The point is to reduce America's overbuilt health infrastructure and health care spending with it, Champlin said.

With trends that fundamental as tailwinds, Athena's ceiling is high. How high, no one yet knows. When shares went as high as $200 in March, even longtime fan Jim Cramer wobbled. But the ceiling is high enough that today's multiples aren't as troubling as Einhorn argued in May.

The fascinating thing about Athena's numbers is how aggressively management is betting on the company.

The company generated $63.8 million of operating cash flow in the first half of 2014, up threefold in a year, the kind of performance that tends to justify $4.8 billion valuations. (Annualized, that's 36 times cash flow). Yet Bush reinvested $55.2 million of that into new software development, property and equipment. That's the kind of growth-seeking, profit-deferring behavior that used to make skeptics count out Netflix's Reed Hastings and Amazon's Jeff Bezos. And it has turned Athena from a bill-collection company into an increasingly diversified health-data business where clients like Summit Medical gradually buy more services.

Champlin says Athena is facing an inflection point where it will evolve from hypergrowth into a well-run growth company. Its biggest challenge is more opportunities than it can pursue at once, he says. That's a nice problem to have.

At the time of publication, Mullaney had no positions in stocks mentioned.

Tim Mullaney covers economics, health care and technology. Contact him at or follow him on Twitter:

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Now let's look at TheStreet Ratings' take on Athenahealth.

TheStreet Ratings team rates ATHENAHEALTH INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ATHENAHEALTH INC (ATHN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.2%. Since the same quarter one year prior, revenues rose by 29.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, ATHN's share price has jumped by 42.12%, exceeding the performance of the broader market during that same time frame. Although ATHN had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • The gross profit margin for ATHENAHEALTH INC is rather high; currently it is at 58.16%. Regardless of ATHN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ATHN's net profit margin of -4.94% significantly underperformed when compared to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Technology industry. The net income has significantly decreased by 1250.7% when compared to the same quarter one year ago, falling from $0.70 million to -$8.06 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Health Care Technology industry and the overall market on the basis of return on equity, ATHENAHEALTH INC underperformed against that of the industry average and is significantly less than that of the S&P 500.