Health Grades, Inc. (Nasdaq: HGRD) Posts a Strong Quarter

Yesterday’s news on quarterly earnings didn’t hit start a breakout in Health Grades, Inc. (Nasdaq: HGRD) share price, but added to the previous valuation. The report depicted strong sales and earnings growth in 2009, but it still lacked EPS growth.[BANNER]

2009 Q4 net income was $1.9 million, up 91% since previous year and sales grew 28% to $14.3 million. The sales growth was largely influenced by their internet business segment which provided $5.7 million in Q4. Full year revenue growth was 32%, but the projected 2010 growth rate is only 20% which raises some concern, but remains a rather favorable number. Profit margins are expected to further increase though, from the current 17% to 19%-22% in 2010.

As mentioned EPS lacked growth momentum despite two digit increases in overall sales and profit. To be exact EPS has been flat for the last three quarters stuck at $0.06 per share. Share dilution is in place, as employees exercise their options. Four million additional shares can be issued in this manner, representing a possible 13% dilution to the 29.7 million outstanding shares.

The stock price is refusing to go higher partly because of the current trading range. At $5.20 per share it’s already near the top of the consolidation area that’s been in place for nearly 7 months now. If we had seen EPS growth, the range might have been broken, but now it’s questionable.

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