By Michael Kim
READ THE FULL HCTI RESEARCH REPORT
We are initiating coverage of Healthcare Triangle, Inc. (NASDAQ:HCTI) with a 12-month price target of $6.00, translating into sizeable upside from the stock’s current price. Healthcare Triangle Inc. (HCTI) is an information technology company providing digital transformation on the cloud, security and compliance, data lifecycle management, healthcare interoperability, and clinical and business performance optimization to the Healthcare and Life Sciences (HCLS) industry.
Our investment thesis revolves around:
1. Differentiated model: At a high level, the HCLS industry continues to deal with challenges as it relates to optimizing digital transformation solutions (more broadly) and data analytics services (more specifically) to enhance clinical outcomes, consumer experiences, and financial performance. At the crux of the issue, the healthcare industry remains highly fragmented, with incompatible legacy technology systems across hospitals, providers, pharmacies, and insurance companies.
Healthcare Triangle’s platform, solutions, and services leverage proprietary technology to support better clinical outcomes and operating efficiencies via data management/analytics optimization. Key competitive advantages for HCTI include the company’s: 1) domain expertise across cloud technologies, data analytics, AI/ML, security, and governance; 2) long-standing strategic partnerships with leading public cloud providers in addition to EHR vendors; and 3) compliance subject matter experts ensure Health Insurance Portability and Accountability Act (HIPAA) compliant services.
From a solutions perspective, HCTI offers a comprehensive suite of software, platforms, and services targeting healthcare providers and life sciences companies. This includes EHR software implementation and optimization, post-implementation support, application managed services, and cloud-based backup and disaster recovery. Proprietary software platforms include CloudEz and DataEz that enable cloud transformation, automation, data management, security and data governance, and operations management, as well as Readabl.AI, an Artificial Intelligence-based system that transforms unstructured paper-based information (documents, faxes, clinical reports) into structured EHR data, thereby reducing manual inputs and related processing times.
2. Multi-layered growth story: Revenues started to reaccelerate in 1H25 (up 58% vs. 2H24), and we look for momentum to continue to build in the back half of 2025, with outsized growth in 2026 and 2027. Key drivers include: a) a massive and growing industry, with the U.S. healthcare IT market projected to grow from $160.5 billion in 2024 to $566.5 billion in 2034 (with higher growth anticipated for HCTI’s key verticals), as healthcare organizations continue to face various operational headwinds, rising costs, and shifting regulatory backdrops; b) HCTI’s differentiated/integrated technology-enabled services designed to improve patient and consumer outcomes and drive operational efficiencies; c) a broader footprint, with management focused on increasingly leveraging the team’s strong domain expertise to further expand the company’s geographic reach beyond the U.S; d) further expanding HCTI’s wallet share with existing software services clients by increasingly activating higher-margin/recurring managed services solutions post initial deployment periods; and e) Healthcare Triangle maintains a strong track record of accretive strategic acquisitions that have expanded the company’s footprint and augmented growth via revenue synergies.
3. Accelerating revenues + margin expansion: Our model calls for slowing net losses of ($1.37) and ($0.25) per share for 2025 and 2026, respectively, followed by essentially breakeven EPS in 2027. Looking out to 2028, we forecast EPS to hit $0.42. Key modeling inputs include reaccelerating revenue growth and rising margins. From a top line perspective, we forecast total net revenues of $19.2 million in 2025, up 64% from $11.7 million in 2024, reflecting a sizeable backlog in addition to ~$2 million of new wins thus far this year, as well as ~$2 million of “high-probability opportunities.” Beyond this year, we look for ongoing growth, with revenues of $27.9 million, $33.5 million, and $40.2 million in 2026, 2027, and 2028, respectively. Importantly, our model does not incorporate accretion related to the potential acquisition of Teyame.AI, a leading provider of AI-powered customer experience solutions projected to generate $34 million of revenue and $4+ million of EBITDA in 2025.
At a high level, strong revenue growth combined with rising margins likely translates into a favorable inflection in profitability followed by accelerating growth in operating income. More specifically, we look for gross margins to expand from 14% in 2Q25 to 34% in 2028, reflecting an ongoing mix shift in favor of highly-scalable/higher-margin subscription services and platform revenues. Target gross margins remain elevated across HCTI’s key verticals, including EHR (30%+), Healthcare Cloud (40%+), and AI Solutions (70%+). In fact, management remains steadfast in eschewing lower-margin (sub-25%) contracts. Following through, we expect rising gross profits combined with ongoing cost optimization to drive a powerful inflection in profitability, with key drivers likely including stepped-up operational efficiencies, streamlined expenses, and rising economies of scale.
4. Valuation opportunity: The stock’s current depressed valuation likely reflects declining revenues in 2024 and limited top-line growth thus far in 2025, ongoing net losses, heightened going concern risk, and the potential for dilutive equity capital raises to fund growth. That said, we look for a considerable upward revaluation for the stock, as awareness and appreciation of the company’s unique business model, accelerating/sustainable growth prospects, competitive positioning across high-growth markets, revenue profile remix, profitability inflection, and valuation disconnect increasingly take hold. Indeed, we look for a substantial step up in HCTI’s earnings power, as well as a steadier revenue growth profile, which we believe are not reflected in the stock at current levels. Moreover, further acquisitions of strategically complementary assets at attractive valuations likely represent powerful catalysts for HCTI.
Despite what we believe to be conservative inputs/assumptions, our DCF model suggests a wide disconnect between HCTI’s improving fundamentals and the stock’s current price. Furthermore, we looked at peer valuation multiples to validate our DCF-based price target. To be sure, comparable Healthcare Information Services (companies that develop and provide comprehensive physician practice management systems and software for hospitals, medical practices, and managed-care organizations) small cap stocks trade at ~18x next year’s earnings. We recognize most companies on the list are meaningfully larger, with considerable infrastructure, resources, and financial advantages. Furthermore, we forecast ongoing net losses through next year, with around breakeven EPS in 2027 for HCTI. That said, we look for HCTI to benefit from a steeper growth curve through 2028 when we project EPS to hit $0.42. Applying a peer-average forward P/E multiple (reasonably in our minds given HCTI’s stronger growth outlook) to our 2028 EPS estimate of $0.42, then discounting back the implied share price by a couple of years, yields a fair value of approximately $6.00 for the stock.
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