$4.38
$24.83
bear $4.38
base $15.68
bull $24.83
margin of safety $9.00
market price* $27.36
Waystar sells cloud software that helps U.S. hospitals, health systems and physician groups get paid: claim submission and denial management, prior authorization, patient billing and payment collection, and, since October 2025, AI-driven clinical documentation software from the Iodine acquisition. Revenue is largely subscription plus volume-based fees, spread over a very diversified base (the ten largest clients were only 10.8% of 2025 revenue; 1,391 clients pay more than $100,000 a year). Revenue grew from $791 million in 2023 to $943 million in 2024 and $1,099 million in 2025, and existing clients spent 112% of the prior year's amount in 2025 (110% in 2024). Management notes that some of that strength came from clients moving to Waystar after a competitor's February 2024 cybersecurity incident, so we do not treat that pace as repeatable. How we measured earnings. We start from operating cash flow, take out swings in working capital, and deduct stock compensation as a real cost ($42 million in 2025). We deduct only the capital spending needed to maintain the business (about $22 million a year; total capex of roughly $26 million includes some growth spending). Because Waystar carries $1.47 billion of debt, we then add cash interest back ($82 million in 2025) to value the business before its lenders and subtract the debt afterward. That business cash flow was $256 million in 2022, $251 million in 2023, $235 million in 2024 (depressed by about $46 million of extra stock compensation around the June 2024 IPO) and $365 million in 2025. Large amortization of acquired intangibles ($119 million in 2025, falling) is a non-cash charge and is correctly added back; we reflect the economic decay of acquired technology in the slow long-term fade of each case rather than by cutting the earnings level. Starting point. We use about $280 million a year: the middle of the 2022-2025 results (about $254 million) plus roughly $25 million for Iodine, which is paid for but only in the numbers for one quarter. We did not use 2025's $365 million because cash taxes were unusually low ($32 million versus about $50 million in 2023-2024, and $43 million in the first half of 2026 alone). The first half of 2026 supports a normalized level near $300 million (operating cash flow was $144 million versus $161 million a year earlier, despite 20% higher revenue, mostly on higher cash taxes and capital spending). Growth check: 2025 business cash flow was up 55% on 2024, flattered by the IPO stock-compensation charge and low taxes, while the first half of 2026 was down about 10%; our base case assumes 3% in year one, below the 2025 rate. Base case: business worth about $4.5 billion, debt $1.47 billion, leaving about $3.05 billion or $15.68 per share (194.5 million diluted shares). Cash flow grows 3% a year for five years and 2% for the next five, which is at or below what existing-client expansion has delivered (110%+ net retention in each of the last two years, even excluding the competitor-incident boost) and far below 2023-2025 revenue growth of 12-19%. After year 10 the platform's switching costs (integrated into hospitals' billing workflows) keep it earning, but we let cash flow fade 3% a year as technology ages. Left out: new products, share gains, margin expansion and further large acquisitions, none of which is contracted or proven repeatable. Bear case: business worth about $2.4 billion, debt $1.47 billion plus roughly $80 million for refinancing at higher spreads when the term loan comes due October 22, 2029 (the revolver matures October 2028); equity about $0.85 billion or $4.38 per share. It starts from the weak 2024 level of $235 million, has cash flow shrinking 2% a year for ten years as the temporary gains from the competitor's incident reverse and net retention slips below 100%, then fades 6% a year. Business cash flow stays well above the roughly $83 million annual interest bill throughout. Waystar has a history of repricing its loan down, so we do not assume distress. Bull case: business worth about $6.3 billion, debt $1.47 billion; equity about $4.83 billion or $24.83 per share. It starts from about $312 million (2025 with normal taxes, in line with the first half of 2026 including Iodine), grows 6% a year for five years and 3% for five, well below the 13% organic revenue growth of 2025 and the 110%+ net retention, then fades 2% a year. What could make this wrong: cash taxes and capital spending have both risen in 2026 (capex $31 million in the first half versus $11 million), so earnings could stay near the lower first-half pace; the Iodine deal cost $630 million and could disappoint; competitors with larger platforms or AI-driven automation could pressure pricing; and the company remains levered at roughly 3.8 times operating profit plus depreciation. We could not reconcile the full first-half 2026 cash flow detail beyond the tax and capex items, since only summary interim data was available. Margin-of-safety price. Leverage makes the per-share outcomes wide (bear $4 to bull $25) even though the business itself is steady and subscription-based. The margin-of-safety price is about $9 per share, roughly 40% below the base case and about twice the bear case, a margin for a stable but leveraged, technology-exposed business.