Pro Medicus Ltd (PME)
Happy New Year gents! PME has come off quite a bit and looks like it still might have more to go. Is there a price where MM will become interested?
The Latest Q&A
Answer
HNY Josh,
PME has basically halved over the last 6-months without a downgrade illustrating how much the tech/growth stocks have fallen out of favour. The stock is currently trading around 20% ‘cheap’ relative to it’s 5-year average valuation and closer to 40% on a 2-year basis.
Over that time frame, PME has won a series of large, long-term US healthcare contracts, highlighted by Trinity Health (~$330m, 10 years) and UCHealth (~$170m, 10 years), its two largest deals ever. along with multiple mid-sized contracts and renewals with major hospital systems and radiology groups, significantly increasing recurring revenue visibility and reinforcing Pro Medicus’ current dominance in US enterprise medical imaging software.
However, we answered a question earlier on in this note about growth stocks and software companies specifically. The same would apply to PME, but the impact could well be amplified given PME is still trading on a ridiculously high multiple (Est 118x for FY26) predicated on significant future growth. We don’t think it deserves such a multiple given the uncertainty around what AI could do to it’s business.
- PME will probably turn sharply when the worm turns for growth but there are a number of quality stocks in the same position that are not trading on such a high valuation.
