The Pro Medicus Ltd (ASX: PME) share price went down 3% despite announcing a new contract win.
What was the Pro Medicus new win?
Pro Medicus revealed that it has signed a 7-year $31 million deal with a major academic health system comprising UC Los Angeles (UCLA), UC San Francisco (UCSF), UC San Diego (UCSD), UC Davis (UCD) and UC Irvine (UCI).
The contract, based on a transactional licensing model, will see the company’s Visage 7 Viewer implemented across the five diagnostic imaging departments, the first time the entire system will be unified on a single diagnostic imaging platform.
Pro Medicus’ deal also provides the option for the health system’s affiliates to standardise on the Visage platform providing potential upside in addition to that provided by the transaction-based model.
Planning for the rollout is to commence immediately with initial ‘go lives’ targeted for the second half of the calendar year with all campuses to be deployed over an 18 to 24 month period.
Pro Medicus was very pleased with this deal because it further extends its footprint in tier 1 academic health systems.
Pro Medicus management comments
Dr Sam Hupert, the CEO of Pro Medicus, said: “This was a highly sought after, extremely competitive tender and as you would expect for such a large and highly sophisticated client, they underwent a very extensive evaluation process that included onsite pilots involve all five main campuses. The fact we won unanimous endorsement speaks to the strength of our offering.”
Time to buy Pro Medicus shares?
The ASX medical technology business has won six out of six of the major contracts in the market over the last seven months, across a broad range of opportunities in the US and Europe.
With such a high EBIT margin (EBIT explained), a lot of this new revenue will fall to the bottom line of Pro Medicus – which is great for profit growth. It’s a high quality business, with no debt, a growing cash balance and a rising dividend.
However, the Pro Medicus share price has almost doubled over the last year and it’s now valued at 162 times the estimated earnings for the 2021 financial year, according to CommSec. That’s very expensive, even for a high quality business like this one.
There are probably a few other ASX tech shares I’d rather invest in first, but if I were already a Pro Medicus shareholder I’d be happy today.
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