We came across a bullish thesis on Waystar Holding Corp. (NASDAQ:WAY) on ValueInvestorsClub by raffles378. In this article, we will summarize the bulls’ thesis on WAY. The company’s shares were trading at $26.50 when this thesis was published, vs. the closing price of $36.70 on Dec 31.

A patient viewing their medical diagnosis on a digital healthcare ecosystem.

Waystar primarily operates in the healthcare industry through two key segments: software and payments. The software segment comprises revenue cycle management that provides services like financial clearance, claim management, denial management, revenue capture and analytics. The payment segment provides solutions for streamlining payments, billing and reimbursement processes.

A key feature of Waystar’s business is high profitable margins across all business segments. The classic software business operates as a subscription-based model with gross margin and EBITDA margin of 80% and 50%, respectively. The revenue of Payments segment is based on transaction volume. It has a gross margin of 60-70%, with an EBITDA margin of 30%.

While its subscription business has been flourishing, a 109% net revenue retention demonstrates its ability to cross-sell and upsell its products. It has maintained a leadership position in the Revenue Cycle Management space by capturing 4-5% of the hospital sector and 7-8% in ambulatory care. Revenue and adjusted EBITDA in Q3-24 grew by 22% and 19% on a year-over-year basis and WAY has maintained an NRR of 109%. The EBITDA projections for the year have also been revised upward from $360-368 million to $374-378 million.

The quality of its earnings also reflects a robust financial performance. The FCF conversion rate stands at 75%. Capex forms only 2% of its revenue but this has not deterred the ability of the company to onboard new clients. It managed to onboard over 30,000 new providers in the latest quarter. Revenue is expected to grow at 10-11% with a strong free cash flow conversion.

On the flip side, valuation is not cheap, with a current EBITDA multiple of 24.7. While this is lower than its peers like Veeva, a balancing act is required that needs to factor in the growth rate that WAY can achieve. The potential for a further increase in price cannot be discounted once the stock becomes eligible to be included in the indices.

While we acknowledge the potential of WAY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WAY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.