One of the most exciting shares in the healthcare sector in my eyes is fast-growing medical imaging company Pro Medicus Limited (ASX: PME).
Pro Medicus is the company behind the increasingly popular Visage 7 platform. The platform delivers enterprise diagnostic, clinical, and mobile viewing solutions for healthcare institutions seeking to accelerate and enhance the delivery of radiology services.
As the healthcare industry moves away from limited legacy systems I believe Pro Medicus is well positioned to profit. After all, Visage 7 is widely regarded as being the best-in-class product in the industry.
Which is great news because the company estimates that the North American picture archiving and communication systems market it operates in is worth over $2 billion per year and growing.
I feel confident that the company is on the right path to winning a good share of this market.
In FY 2016 Pro Medicus won contracts with a number of large and prestigious health care providers such as Mayo Clinic. Thanks to the network effect, these contract wins have resulted in new opportunities coming to market and growth in its sales pipeline.
As the company has a relatively fixed cost base, each contract it signs has a greater impact on overall profitability.
So although the company produced full year profit of just $6.4 million in FY 2016, as the company scales its bottom line should grow at a rapid clip. It is for this reason that investors are willing to pay such a premium for its shares today.
Following a 6% jump in its share price today Pro Medicus is valued at approximately $520 million or 81x full year earnings.
With significant growth already built into the share price an investment in the company does carry risks. Failure to deliver on expectations would likely result in a sharp drop in its share price.
But I feel confident that Pro Medicus has a bright future ahead of it and will live up to the market's high expectations. The fact that it is cash flow positive and debt-free is a big bonus too.
Because of this I consider the company to be up there with the likes of Nanosonics Ltd. (ASX: NAN) and Ellex Medical Lasers Limited (ASX: ELX) as a great long-term buy and hold investment. However due to the risks it would be advisable to keep it to just a small part of your portfolio in my opinion.
