How might the results influence the valuation multiples (e.g., P/E, EV/EBITDA) used by investors to assess Health Catalyst?

Short answer

The numbers that Health Catalyst (HCAT) disclosed for Q2‑2025 will become the “new baseline” that analysts plug into the standard valuation ratios—price‑to‑earnings (P/E) and enterprise‑value‑to‑EBITDA (EV/EBITDA). If the report shows higher‑than‑expected revenue growth, expanding margins, and a clear path to sustained, profitable earnings, the multiples are likely to compress (the stock price can rise faster than earnings/EBITDA, pushing the P/E and EV/EBITDA down) or, more commonly, investors will be willing to pay a richer multiple because they expect future earnings to keep accelerating.

Conversely, if the quarter delivers missed revenue targets, narrowing margins, a net‑loss or weaker‑than‑expected EBITDA, the market will demand a discount on the stock, which shows up as a higher P/E (or a P/E that turns “N/A” if earnings are negative) and a higher EV/EBITDA (the same enterprise value divided by a smaller EBITDA).

Because the press release itself does not give the precise figures, the analysis below walks through the key line‑items that investors watch, explains the mechanical link to the multiples, and outlines the likely directional impact of the most common outcomes in a Health Catalyst earnings release.

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1. How valuation multiples are built

Multiple	Formula	What it measures
P/E	Market Capitalisation ÷ Net Income (or Share Price ÷ EPS)	How many dollars investors are willing to pay for each dollar of current earnings.
EV/EBITDA	(Market Cap + Debt – Cash) ÷ EBITDA	How many dollars of enterprise value are paid for each dollar of operating cash‑flow‑like earnings (before interest, tax, depreciation, amortisation).

Both ratios are forward‑looking in practice: analysts often substitute forecast earnings/EBITDA (e.g., FY 2025 or FY 2026) for trailing numbers. Therefore:

• Quarterly results affect the trailing multiples immediately.
• Guidance, management commentary, and the trend implied by the quarter affect forward multiples.

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2. Key Q2‑2025 data points that will move the multiples

Metric (usually in the earnings press release)	Why it matters for multiples
Revenue (YoY & QoQ growth)	Top‑line growth signals market share gains and validates the demand for Health Catalyst’s data‑analytics platform. Faster growth → higher growth‑adjusted multiples (e.g., a higher P/E allowed).
Gross margin	Indicates pricing power and cost structure of the “software‑as‑a‑service” model. Improving gross margin → higher EBITDA conversion → lower EV/EBITDA (or a richer multiple if the market already expects margin expansion).
Operating expense trend (R&D, Sales & Marketing, G&A)	If operating expenses are rising slower than revenue, operating leverage improves, boosting operating income and EBITDA. That tightens EV/EBITDA.
Adjusted EBITDA (and EBITDA margin)	Direct input to EV/EBITDA. A higher adjusted EBITDA for the same enterprise value reduces the multiple.
Net Income / EPS (GAAP & Adjusted)	Direct input to P/E. A surprise upside in EPS reduces the trailing P/E (the same market cap divided by a larger numerator).
Free cash flow	While not directly in the two ratios, strong free cash flow often justifies a premium on both P/E and EV/EBITDA because it signals the ability to reinvest, pay down debt, or return capital.
Balance‑sheet changes (Debt & Cash)	Affect EV. If the quarter shows significant debt repayment or cash generation, EV declines, which compresses EV/EBITDA. Conversely, a large new debt issuance inflates EV and raises the multiple.
Guidance / Outlook (Revenue, EBITDA, EPS)	Forward guidance is arguably the biggest driver of forward multiples. An optimistic outlook can lift both P/E and EV/EBITDA even if the quarter itself was merely in line.
Non‑GAAP Adjustments (stock‑based compensation, acquisition amortisation, etc.)	Analysts may strip these out to arrive at “core” earnings. If the Q2 release emphasizes large adjustments that improve adjusted EPS/EBITDA, market participants may price the stock on a higher adjusted multiple.

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3. Typical directional impact of different scenarios

Below are three “what‑if” scenarios that illustrate how the Q2‑2025 results could shift HCAT’s valuation multiples. The exact numbers are illustrative; replace them with the actual figures once you have them.

Scenario	Revenue	YoY Growth	Adjusted EBITDA	Net Income (GAAP)	EPS	Guidance	Expected effect on multiples
A. Beat & Raise Guidance	$210 M (↑ 18% YoY)	18% vs 12% consensus	$45 M (EBITDA margin 21%)	$8 M (EPS $0.38)	+10% vs consensus	FY 2025 revenue +12%, EBITDA +15%	P/E: trailing P/E drops (higher EPS) and forward P/E compresses (higher FY EPS). EV/EBITDA: trailing multiple drops (higher EBITDA) and forward EV/EBITDA falls because investors will price a higher FY EBITDA. Stock price likely climbs, compressing both ratios.
B. In‑line but Weak Guidance	$185 M (↑ 6% YoY)	6% vs 12% consensus	$30 M (EBITDA margin 16%)	$3 M (EPS $0.14)	+5% vs consensus	FY 2025 revenue +3%, EBITDA flat	P/E: trailing P/E rises (lower EPS) and forward P/E expands (lower FY EPS) → investors demand a discount. EV/EBITDA: trailing multiple rises (lower EBITDA) and forward EV/EBITDA expands. Stock price likely falls.
C. Miss & No Guidance	$170 M (↓ 2% YoY)	-2% vs 12% consensus	$22 M (EBITDA margin 13%)	$(2) M (loss)	N/A	No FY guidance, only “uncertain macro”	P/E: GAAP earnings negative → P/E becomes “N/A”; analysts will shift to forward‑looking or non‑GAAP EPS, but the lack of guidance will push the forward P/E higher (discount). EV/EBITDA: trailing EV/EBITDA spikes (much lower EBITDA) and forward EV/EBITDA expands sharply. Stock may see a sharp sell‑off.

Key take‑away:

- Better‑than‑expected earnings/EBITDA → multiples compress (i.e., they look cheaper) because the same market cap now buys more earnings.

- Worse‑than‑expected earnings/EBITDA → multiples expand (i.e., they look more expensive) because the same market cap buys fewer earnings.

In practice, investors also consider the growth premium. Even if the absolute multiple rises a bit, a higher growth rate can justify a higher P/E/EV‑EBITDA than peers. Therefore the change in the expected growth trajectory that the quarter (and especially the guidance) communicates is often more important than the raw number.

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4. How to translate the Q2 results into concrete numbers for your own multiples calculation

1. Gather the data from the press release (or the accompanying 10‑Q):

   • Q2 revenue, YoY % change, and segment breakdown (e.g., “Analytics Platform,” “Professional Services”).
     
   • GAAP net income, EPS, and any “adjusted” net income (after removing stock‑based compensation, acquisition‑related amortisation, etc.).
     
   • Adjusted EBITDA (or calculate EBITDA: net income + interest + taxes + depreciation + amortisation).
     
   • End‑of‑quarter balance sheet items: total debt, cash & cash equivalents, shares outstanding.
     

2. Calculate trailing multiples (as of 30 June 2025):

[
\text{Trailing P/E} = \frac{\text{Current Share Price}}{\text{TTM EPS (or Q2‑2025 EPS if TTM not yet available)}}
]

[
\text{Trailing EV/EBITDA} = \frac{\text{Market Cap} + \text{Total Debt} - \text{Cash}}{\text{TTM EBITDA (or Q2‑2025 EBITDA)}}
]

If the TTM numbers are not yet published, analysts typically use the most recent 12‑month period that includes Q2, i.e., Q3‑FY24 through Q2‑FY25.

1. Update forward multiples using guidance:
   

[
\text{Forward P/E} = \frac{\text{Current Share Price}}{\text{Consensus FY 2025 (or FY 2026) EPS}}
]

[
\text{Forward EV/EBITDA} = \frac{\text{Current EV}}{\text{Consensus FY 2025 (or FY 2026) Adjusted EBITDA}}
]

• Take the latest analyst consensus from Bloomberg, FactSet, or Refinitiv.
  
• Adjust the EV for any announced debt‑repayment or cash‑burn plan in the quarter.

1. Compare to peers:
   
   • Industry average P/E for health‑tech and data‑analytics providers (e.g., Cerner, Allscripts, IQVIA) is typically in the 30–45× range (high growth).
     
   • Industry average EV/EBITDA for SaaS‑style health‑IT firms is usually 20–30×.
     
   • If Health Catalyst’s post‑Q2 multiples sit below these averages, the market may be undervaluing relative to peers; if above, the market may be pricing in superior growth or a “risk premium” (e.g., higher debt).

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5. Additional qualitative considerations that affect multiples

Factor	Effect on multiples	Why it matters for Health Catalyst
Customer concentration	Higher concentration → risk premium → higher multiples to compensate	A few large health‑systems could dominate revenue; any churn risk would push multiples up (more price demanded).
Recurring revenue mix	More subscription revenue → higher ARR growth → lower multiples (more confidence)	Health Catalyst’s model is moving toward recurring analytics subscriptions; a shift from one‑time implementations to SaaS can tighten multiples.
Margin trajectory	Improving gross/operating margins → lower EV/EBITDA (more EBITDA per dollar of EV)	If Q2 shows gross margin moving from ~55% to 60%, investors will anticipate higher cash generation, justifying a richer multiple.
M&A activity	Recent acquisitions (e.g., to broaden data‑sets) can boost growth but also add integration risk → may temporarily expand multiples.	Health Catalyst has been buying niche analytics firms; Q2 commentary on integration progress can sway sentiment.
Macroeconomic/health‑system spending trends	Slower hospital spending → higher risk premium → higher multiples; faster digital‑transformation spending → lower multiples.	The press release may reference “increased hospital adoption of data‑driven care pathways,” which would be a bullish signal.
Regulatory environment	New data‑privacy rules could raise compliance costs → higher multiples; favorable policies (e.g., CMS incentives for analytics) could lower multiples.	Health Catalyst often cites policy drivers; any mention of upcoming incentives would be a catalyst for lower multiples.

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6. Practical steps for investors after the Q2 release

1. Read the Management Commentary – Look for explicit statements about sustainable subscription growth, margin improvement initiatives, and cash‑flow expectations. These forward‑looking cues drive the forward multiples more than the absolute numbers.

2. Check the Earnings Call Transcript (if released) – Analysts will probe the management on:

   • Customer churn / contract renewals.
     
   • Timing of product roadmap releases (e.g., new AI‑driven analytics modules).
     
   • Pipeline of large‑health‑system contracts.
     Their confidence level often moves the market before the numbers are fully digested.
     

3. Update your financial model – Plug the Q2 numbers into your three‑statement model, recalc the TTM EBITDA and EPS, and adjust the growth assumptions based on guidance. Then recompute the implied P/E and EV/EBITDA.

4. Benchmark the new multiples against:

   • Historical range for Health Catalyst (e.g., 5‑year average P/E ≈ 35×, EV/EBITDA ≈ 22×).
     
   • Sector peers (IQVIA, Cerner, Change Healthcare).
     
   • Growth‑adjusted multiples (e.g., PEG ratio, EV/EBITDA‑Growth).
     

5. Decide on positioning –

   • If multiples are significantly lower than the historical average and the fundamentals are improving, the stock may be undervalued.
     
   • If multiples are higher but the guidance signals slowing growth, the market may be overpriced.
     

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7. Quick “Rule‑of‑Thumb” Summary

Outcome	Effect on P/E	Effect on EV/EBITDA
Revenue & EBITDA beat expectations	↓ (cheaper) → market price up → ratio falls	↓ (cheaper)
EPS beat but EBITDA flat	↓ (cheaper) due to higher net income	→ may stay flat or rise slightly (EBITDA unchanged)
Revenue beats, but heavy one‑time expenses cut net income	P/E may rise (earnings lower) despite revenue growth	EV/EBITDA may fall (EBITDA higher) – investors may focus on the cash‑flow metric.
Guidance raises FY‑2025/2026 growth rate	Forward P/E compresses (higher future EPS)	Forward EV/EBITDA compresses (higher future EBITDA)
Guidance cuts growth / warns of margin pressure	Forward P/E expands (lower future EPS)	Forward EV/EBITDA expands
Large debt issuance or cash drawdown	P/E unchanged (price‑only factor)	EV rises → EV/EBITDA expands (same EBITDA, higher EV)
Strong cash‑flow / debt‑paydown	P/E unchanged	EV falls → EV/EBITDA compresses

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Bottom Line

• The Q2‑2025 earnings release is the pivotal data point that will reset Health Catalyst’s trailing multiples and shape forward‑looking multiples via management guidance.
  
• Positive surprises & an optimistic outlook will let investors accept richer multiples (higher P/E, higher EV/EBITDA) because they anticipate faster earnings/EBITDA growth.
  
• Negative surprises or muted guidance will force the market to demand a discount—the multiples will expand (higher P/E, higher EV/EBITDA) as investors price in lower future cash generation and possibly higher risk.
  

When you have the actual numbers, plug them into the formulas above, compare them to the sector averages, and weigh the qualitative signals (margin trajectory, subscription mix, guidance) to decide whether Health Catalyst’s current valuation multiples represent an opportunity or a warning sign.