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Why I’m kicking myself over Pro Medicus Ltd shares

The Pro Medicus Ltd (ASX: PME) share price soared 6% to $19 this morning after the software-as-service medical imaging business announced it has signed a new 7-year contract worth $14 million with leading U.S. healthcare and private hospital group Duke Health.

The stock is now up an incredible 24x over just the past 5 years from 79 cents per share to $19 to leave me kicking myself for not buying into this growth story earlier, despite it ticking all the boxes as a small-cap business to own.

Compounding my imbecilic approach to this golden investment opportunity was my failure to take a material position when I did first buy in around $7.70 per share.

Even though I’ve now comfortably doubled my money in no time, I’m still stewing at my decision making on Pro Medicus.

After all excluding yourself from a huge share market winner is a more expensive mistake than buying a company that goes bankrupt.

For example if you miss out on a business that produces a 300% return because you believe “it’s too expensive” or “you’ve missed the boat” then you’re actually costing yourself more money than writing off 100% of an investment.

As I’ve written before if you write off a business as ‘too expensive’ you may effectively exclude yourself permanently from the best growth businesses in global share markets.

For example stocks like Amazon and Salesforce Inc. in the U.S. have produced eye-watering returns, but have always looked very expensive on conventional valuation metrics.

Pro Medicus appears attractive as an investment as it’s founder led, profitable, and has a market-leading product (Visage 7) in a healthcare space flush with cash for any successful small-cap business.

As a cloud-based software business it also boasts attractive economics such as high gross profit margins, scalability, and huge global addressable markets via the reach of the internet.

As such it could be a mistake to dismiss Pro Medicus on valuation grounds given markets are forward looking and it keeps winning major healthcare contracts with cutting-edge healthcare groups in the U.S.

Therefore I’d suggest anyone keen on the Pro Medicus story looks to ‘dollar cost average’ into the business in order to spread the risk of overpaying.

I will wait a little to buy more shares as I expect I will be offered a cheaper price before the company’s full year profit report in August.

I’d also caution that it remains a high-risk investment on valuation grounds and suitable only for those with a stomach for volatility.

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Tom Richardson owns shares of Pro Medicus Ltd and Amazon.

 You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia has recommended Pro Medicus Ltd. 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.

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