PME share price in focus
Founded in 1983, Pro Medicus is a provider of radiology IT software for hospitals, imaging centres and health care groups worldwide.
The Pro Medicus suite of products centre around radiology information systems (RIS), Picture Archiving and Communication Systems (PACS), and advanced visualisation solutions. These products support everything from patient scheduling and billing to fast medical imaging interpretations and analysis.
The company’s value proposition partly lies within its flagship Visage software which allows radiologists to view large image files generated by X-rays remotely on mobile devices. This allows diagnostic decisions to be made on-the-go and ideally improves patient outcomes.
The case for Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 4.70% per year over the last 5 years. That compares to the average of all ASX sectors of 4.77% over the same period. So, here are some of the reasons that you might want to add a healthcare company like PME to your watchlist.
Sticky revenue
Most healthcare falls under the category of essential spending. In other words, when times are tough, healthcare spending is one of the last expenses that people will cut.
Healthcare companies are providing an essential service that isn’t affected by commodity prices or seasonal demand, so their revenue tends to be a bit ‘stickier’ than other companies – i.e. it’s more consistent. In fact, healthcare was the best performing sector during the GFC.
Growth potential
In the US, which accounts for more than 40% of global healthcare spending, it’s estimated that healthcare profits will increase 7% per year from 2022 to 2027, reaching US$819 billion.
Healthcare is a rapidly growing sector in general, but within the healthcare sector there are certainly some sub-sectors that stand out. For example, companies providing IT and data solutions and ‘software-as-a-service’ (or SaaS) are expected to grow at more than 15% per year from 2024 to 2030.
The ethical investor
A recent Morgan Stanley survey revealed that more than half of investors plan to increase their allocation to sustainable investments in 2024. With the rising interest in ‘ethical’ or ‘sustainable’ investing, sectors like healthcare that provide important public services could be well placed to benefit.
PME share price valuation
As a growth company, one way to put a rough forecast on the PME share price could be to compare its price-to-sales multiple over time. Currently, Pro Medicus Limited shares have a price-sales ratio of 104.48x, compared to its 5-year average of 82.69x, meaning its shares are trading higher than their historical average.This could mean that the share price has increased, or that sales have declined. In the case of PME, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the PME share price.
