Is it time you bought Pro Medicus Limited shares?

Pro Medicus Limited (ASX:PME) reports a 98% jump in profits, but is it too late to buy this growth share?

| More on:

medicine,

Shareholders of medical imaging company Pro Medicus Limited (ASX: PME) have had a great start to the week. Its share price has jumped 4.4% higher after the company released its FY 2016 investor presentation to the market.

Despite Pro Medicus reporting stunning full year results last week, its share price barely budged an inch. Revenue rose 56.9% to $27.6 million and net profit after tax jumped a massive 97.9% to $6.37 million.

Perhaps the most likely reason the share price failed to respond to last week’s results was down to the fact that in the last 12 months its shares had already climbed around 200%. The rampant buying of the company’s shares now means that Pro Medicus has a market capitalisation of approximately $626 million on just $27.6 million of sales.

That equates to a price-to-sales ratio of almost 23, compared to the market average of 3.3. Whilst this is clearly an above-average company with above-average growth prospects, can it justify such a premium today?

The company may only have sales amounting to $27.6 million, but the North American picture archiving and communication market it operates in is worth over $2 billion per year and growing according to management.

The company claims its market-leading Visage product suite to be number one for speed, functionality, and scalability. Judging by the number of key contracts it has been winning recently, I wouldn’t for a second doubt them over this claim.

But what are the chances of them winning a sizable market share that justifies the share price today? Well management believes the market it operates in is highly fragmented and in the process of consolidating. This puts the company in a great position in my opinion, especially with Pro Medicus being 12 months ahead of its competitors according to CEO Sam Hupert’s interview with Open Briefing last week.

This certainly bodes well for Pro Medicus’ future growth prospects and puts it in a great position to capture a growing share of the US market in my opinion.

But ultimately the next 12 months are going to be key to justifying the premium as far as I’m concerned. If the company can win further contracts and grow its share of the market then I would expect investors will remain bullish, but failure to live up to lofty expectations that the market has for it could result in the share price being cut down dramatically.

Although I am a big fan of the company, I would suggest investors restrict any investment to a small part of their portfolio. Pro Medicus undoubtedly has enormous potential like Impedimed Limited (ASX: IPD) and Nanosonics Ltd. (ASX: NAN), but should be classed as a reasonably high-risk investment.

Overall I wouldn’t invest in Pro Medicus today in the hope of another 200% return in the next 12 months, but I would consider making an investment in the company today for its long-term growth potential.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

The share price of ASX infant products retailer Baby Bunting Group Ltd (ASX:BBN) has been a solid performer so far …

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

A new landmark report by the Intergovernmental Panel on Climate Change (IPCC) was released earlier this week. It provided a …

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest …

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos Limited (ASX: AMS) share price has been on a tear this past week, rising 15% on the back …

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) had a breakout year in 2020, moving from relative obscurity …

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start …

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

Investing in other geographic markets has become a popular way to diversify a portfolio. The risks associated with being exposed …

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

Despite the News Corporation (ASX: NWS) share price getting a 31% bump between November last year and today, News Corp …

Read more »