Wageworks Inc (WAGE): A Small Cap Obamacare Buy After Insiders Cash Out?

On Wednesday, small cap employee flexible spending account facilitator Wageworks Inc (NYSE: WAGE) rose 12.22% despite a secondary offering that effectively rewarded insiders plus the stock has tripled since last March. However, Wageworks' CEO recently said in a conference call last week that he believes the private health care exchanges related to Obamacare are expanding the company's market plus WAGE also raised its forecast for full-year growth. So does that make this small cap a buy? 

What is Wageworks Inc? 

Small cap Wageworks calls itself a leading on-demand provider of tax-advantaged programs for consumer-directed health, commuter and other employee spending account benefits, or CDBs, in the United States. Specifically, Wageworks administers and operate a broad array of CDBs which include spending account management programs, such as health and dependent care Flexible Spending Accounts, or FSAs; Health Savings Accounts, or HSAs; Health Reimbursement Arrangements, or HRAs; and commuter benefits, such as transit and parking programs. WageWorks says it has become the provider of choice to many of the nation's largest and most innovative companies, including 50% of the Fortune 100 Companies, 36.8% of the Fortune 500 Companies and 38% of Working Mother Magazine's Best Places to Work.

What You Need to Know About Wageworks Inc

Wageworks priced its follow-on public offering of 2,968,276 shares at a price to the public of $40.45 per share – a discount to a previous closing price of $40.51. The company will not receive any proceeds from the sale of shares with the principal purposes of this offering being to facilitate an orderly distribution of shares for the selling stockholders and to increase WAGE's public float. According to Bloomberg, WageWorks or selling stockholders, may offer "from time to time," up to 7.24 million shares in one or more offerings.

Investors should be aware that Wageworks reported earnings on Wednesday last week with total revenue rising 25% to $54.6 million and GAAP net income of $4.0 million verses $2.4 million for the same period last year. The CEO noted:

"Finally, we are excited to see the addressable market for our services expanding, primarily due to the opportunities for Consumer-Directed Benefits within private health insurance exchanges. Our recently announced relationship with Towers Watson, where we will serve as their exclusive administrator of HSAs and HRAs for their One Exchange Active private health insurance exchange, serves as a good example for this market expansion."

Wageworks also announced a strategic alliance with Ceridian, a leader in human capital management with more than 100,000 clients in over 50 countries. Under the strategic alliance, both companies expect to transition approximately 18,000 employers from Ceridian to WageWorks' Consumer-Directed Benefits with the transitions expected to begin during the fourth quarter of 2013 and continue into 2014.

However, investors should be ware that Wageworks has a trailing P/E of 102.62 and a still very rich forward P/E of 52.86 – meaning shares are hardly a bargain right now for any new investor thinking of getting in.

Share Performance: Wageworks Inc

On Wednesday, small cap Wageworks rose 12.22% to $45.46 (WAGE has a 52 week trading range of $15.71 to $45.46 a share) for a market cap of $1.54 billion plus the stock is up 159.6% since the start of the year, up 178.7% over the past year and up 315.5% since last March:

Finally and for technicians and investors who like looking at technical charts, here is the latest technical chart for Wageworks:

The Bottom Line. Wageworks has been a great performer and could very will continue this performance for current investors, but its sky high valuation should keep you on the sidelines if you are not already in on the party.