The Pro Medicus Limited (ASX: PME) share price hit a record high of $12.65 today as the software-as-a-service (SaaS) medical imaging business continues to attract buyers on the back of increased media coverage and a couple of positive announcements.
Back in January 2014 Pro Medicus shares sold for just 81 cents meaning the stock is up around 15.5x since then for anyone lucky enough to have held the stock over that period.
Even my own tiny investment in the business is up around 50% in 14 months to leave me kicking myself for not sucking up the seemingly large valuation to buy a few more shares back in November 2017.
According to its latest Appendix 3B, Pro Medicus has 103.6 million shares on issues to give it a market cap of more than $1.3 billion at its record high of $12.65 today.
At first blush this might seem slightly outrageous given its FY 2018 profit of just $12.7 million, but not buying shares in the group on the basis of trailing metrics has been an expensive mistake for the past 5 years.
In fact this mistake would have kept you out of pretty much the best growth stock on the ASX, so it pays to look forward on the Pro Medicus story as an investor.
As a software-as-service business it earns a high amount of recurring revenues on high gross profit margins which means it’s already growing profits fast and even paying dividends (50% of cash profit).
Its star performer is its North American business (therefore it’s also benefited from the weaker AUD over time) with the group managing to sell its Visage 7 medical imaging cloud-based records management system to some of the US’s leading healthcare and hospital groups.
In November 2018 when growth stocks everywhere were getting smashed Pro Medicus announced its biggest deal to date, which is a $27 million 7-year contract with Partners Healthcare in the US. It also recently announced a $3 million extension to a contract with a German government network.
Management continue to report a full pipeline of potential new sales and importantly this team has a long track record of delivering on its talk, unlike a lot of other companies on the ASX.
It also has a strong balance sheet ($25 million cash in hand), with a market-leading product serving the most prestigious names in the lucrative healthcare sector.
In other words it ticks all the boxes for investors, but it’s not going to smoke out the value investors at around 100x last year’s net profit.
However, with the stock up 1,450% in 5 years dismissing it on valuation grounds looks a mistake.
Tom Richardson owns shares of ELMOSFTWRE FPO and Pro Medicus Ltd.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ELMOSFTWRE FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended ELMOSFTWRE FPO. 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 Scott Phillips.