Quality Systems Inc. (QSII) appeared on a screen I run looking for potentially overvalued companies. The parameters I use are:

• Market Cap > 1B
• P/E > 20
• PEG > 1
• P/B > 5
• P/S > 5

The twelve stocks that met those criteria are listed below.
QSII jumped out at me as I sold it back in January for around $40.

The main story behind QSII is the push for electronic medical records. In today’s market I consider the valuation being afforded to QSII staggering. Investors are paying almost 32 times current operating cash flows. There is a lot of expectation baked into the current share price and management will need to deliver perfect results for many years to justify prices today. While they may do that, as anything is possible, long term investors can surely find better value in the market today. 

I have no position in QSII, but if I was still long I’d be looking for better value. I’ve added the company to my short watch-list. One positive in the good dividend the company pays out. The quarterly $0.30 dividend delivers a 2.5%. There is little doubt QSII have a great long term growth opportunity in front of them. Great company, over heated valuation and share price. 

Related posts:

1. Quality Systems Inc. (QSII) Makes Room