In a previous article we wrote about the growing area of “electronic health records (EHRs)” or “electronic medical records (EMRs)”, both terms which are typically used interchangeably, and both of which refer to the digitalization of your medical records. The top-5 companies in this space control 42.7% of the market share while the top-20 companies command 72.4% of total market share as seen in the below table:
We thought it would be interesting to go through the above list of the top-20 EMR/EHR providers and see which are publicly traded and therefore accessible to retail investors. We can then throw these companies into a motif to track the performance of the whole EMR/EHR theme and invest in it if we so choose. Here it goes.
We’ve already talked about the first 5 companies on the list, 3 of which are private (Epic Systems, Practice Fusion, and eClinicalWorks). The other two companies, NextGen Healthcare (NASDAQ:QSII) and Allscripts (NASDAQ:MDRX), are publicly traded and provide strong exposure to the EMR theme but have shown investors very poor returns over the past 5 years.
Out of the remaining 15 EMR/EHR companies, 10 are privately held and off limits to retail investors. Vitera and Greenway Medical went through a merger and that merged entity is owned by a private equity firm called Vista Equity Partners. NexTech is a private company that specializes in EMR solutions for plastic surgeons. AmazingCharts.com was acquired by a private company called Pri-Med which specializes in medical education and EHR software. e-MDS, MEDITECH, Office Ally, Community Computer Service (Medent), BioMedix, and AdvancedMD are all private companies as well. This leaves us with 7 publicly traded companies in total.
Of these publicly traded companies, we’ll remove Quest and GE Healthcare because both of these companies are so large that the impact of EMR/EHR to the bottom line is insignificant. NextGen Healthcare and Allscripts we already discussed in this article. We can now take a closer look at the remaining three companies; Cerner, Athenahealth, and McKesson.
McKesson Corporation (NYSE:MCK)
This $35 billion company is mostly involved in pharmaceutical distribution solutions which make up 98.5% of their revenues. Their latest 10-Q talks about “a decline in hospital software service revenues” which doesn’t bode well for the miniscule revenue stream coming from their “Technology Solutions” business. One thing for sure is that this is not a viable pure-play on the EMR/EHR theme.
This $4.2 billion company is a provider of cloud-based services for electronic health records (EHR), revenue cycle management, medical billing, etc. Their share price has appreciated +177% in the past 5 years, no doubt as a result of their strong revenue growth:
Athenahealth acquired a mobile device application in 2013 called Epocrates which they claim is used by 50% of U.S. physicians as an information service. Seems like a good channel through which to promote their cloud-based EHR platform. Their total network covers 75,000 providers and 38 million patients. They aren’t burning too much cash and can hopefully continue growing their revenues at the same strong pace we’ve seen historically.
This $18 billion company is the largest standalone health care IT company in the world. Last year they acquired “Siemens Health Services” which came with 5,000 employees and a price tag of $1.39 billion. The stock price has performed quite well historically, though looking through the latest 10-Q it’s tough to see just how much of their revenues are coming from EMR/EHR. They certainly have the infrastructure in place to sell EMR/EHR solutions so it’s not hard to see why they are the 7th largest EmR/EHR vendor by market size. Based on their latest investor presentation, they believe the EMR opportunity is very large and one they want to continue capitalizing on.
This leaves us with 4 stocks that can give us meaningful exposure to the EMR/EHR theme. We can put them all in a motif in order to trade them as one single basket:
While we prefer to weight the motif by market cap, the varying sizes of these companies and the small total number makes it difficult. Instead, we’ll just give each company a weight of 25%. We can now use this basket to monitor the performance of the EMR/EHR theme over time.
You can open a Motif Investing account for free with no deposit required so you can create your own baskets of stocks and also take a look at our many Nanalyze "motifs" which cover various disruptive technology investing themes.