Streamline Health Solutions STRM Convertible Debt? Acquisition Target?

Question

I have been following STRM for the past several months but I am finding it difficult to determine if the debt used to purchase Interpoint has been converted.  And if so how this conversion would impact the balance sheet and the stock price?

And as I understand your recent STRM analysis, you see STRM as a possible acquisition target and therein lies most of its attractiveness as a 'buy'.  I suppose that is the best way to look at it since it's difficult for me to determine what about STRM distinguishes it from the other 140 HIT companies that would give it a competitive edge (moat?) to gain significant market share against the likes of Cerner, McKesson, Greenway, etc.  But perhaps you know better?

I am a neophyte investor and I appreciate your excellent insights into STRM.  (And you made a darn good projection on the stock price several months ago!)

Answer 1

Before I get to your specific questions, I wish to remind readers that we first recommended STRM back in April 2011 at $1.85 per share. With the stock price now up over 100% since our first report, we are obviously no longer bullish on the shares and do not think the risk/reward profile is attractive. At best, the risk/reward is neutral.

That being said, in terms of your questions, re: convertible debt, according to a recent SEC filing for STRM, the $3 million convert has been converted into 1,529,729 shares of common stock. As for the potential of an acquisition of STRM, by a larger company, I do not think it is likely at the current juncture. A more probably scenario is that STRM will use it's higher stock price to pursue additional acquisitions. This is partly why I am no longer bullish on STRM: I do not like to invest in acquisition-driven growth companies, as the risks are enormous for integration missteps. I would say the main problem with STRM now from a risk perspective, is that the nature of STRM's business is that revenues can be lumpy, as the company pursues large contracts that take time to close. As such, the odds of a quarterly earnings disappointment are now high, and could lead to a price decline in the stock, given the much higher valuation. Of course, should there be any quarterly disappointment, the stock could again become attractive on a risk/reward basis, depending on the price.

Comments

Thanks for your update on STRM.  I guess the recent run up in stock price does diminish the risk-reward aspect so I can understand your reluctance now.  Although from the Q 1 conference call management seems to be optimistic on revenue growth and hiring sales people, albeit they didn't adjust  to the positive their next 9 month outlook, so we shall wait and see.   CEO Watson does seem to have a plan and has executed well in his first year and a half.  And he does have an excellent track record at his previous posts so I will  continue to monitor STRM.

And I will watch Envoy Global for your STRM updates.  Thx.