PME share price in focus
Founded in 1983, Pro Medicus is a provider of radiology IT software serving hospitals, imaging centres and health care groups worldwide.
The company’s suite of products focuses on Radiology Information Systems (RIS), Picture Archiving and Communication Systems (PACS), and advanced visualization solutions. These tools support various functions, from patient scheduling and billing to rapid medical imaging interpretation and analysis.
Pro Medicus’ key value proposition lies in its flagship Visage software, which enables radiologists to remotely view large image files generated by X-rays on mobile devices. This capability allows diagnostic decisions to be made on-the-go, potentially improving patient outcomes by providing timely and accessible information.
The appeal of Healthcare ASX shares
The S&P/ASX200 Healthcare Index (ASX: XHJ) has returned 1.75% per year over the last 5 years. compared to 4.53% per year from the broader ASX 200. Here are three key reasons to consider adding a healthcare company like PME to your investing watchlist.
Sticky revenue
Healthcare spending (in most cases) is essential spending, making it one of the last areas people cut back on during tough economic times.
Unlike cyclical businesses affected by commodity prices or seasonal demand, healthcare companies benefit from stable and consistent revenue streams. We sometimes call this ‘sticky’ revenue. Evidence of this fact is that healthcare was the best performing sector during the GFC.
Growth potential
Globl healthcare spending, particularly in the US – which accounts for over 40% of the global total – is projected to grow significantly. Estimates for the US are 7% per year from 2022 to 2027, reaching US$819 billion.
Within the broad sector of healthcare, certain sub-sectors stand out for their additional growth potential. For example, healthcare IT, data solutions, and ‘software-as-a-service’ (or SaaS) companies are forecast to grow at more than 15% per year from 2024 to 2030, a rate that would get most investors interested.
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 growing interest in ‘ethical’ and ‘sustainable’ investing, sectors like healthcare that provide essential public services are well-positioned to attract new capital and investors.
PME share price valuation
As a growth company, one way to put a broad estimate 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 137.56x, 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.
