The Pro Medicus Limited (ASX: PME) share price raced 16 per cent higher to $31.50 yesterday after it posted a net profit of $19.1 million revenue of $50.1 million for fiscal year 2019.
Today the shares gave back 1.6%, but are still up an incredible 30x in just 5 years from 95 cents to $30.09 today. Moreover, if the analysts at UBS and Morgans are on the money Pro Medicus shares have got some gas in the tank left yet.
According to financial news wires, UBS raised its valuation on the group to $32.50 but stuck with a fence-sitting 'neutral rating', while Morgans raised the shares to an 'add' rating, with Bell Potter on 'hold'.
Goldman Sachs also issued a note yesterday and claimed the "valuation leaves little room for error" in cautioning: "Although this is a high-growth company (30% EPS CAGR), the core driver (Visage 7) has been commercial for over a decade, and is not the sort of nascent technology that current valuation multiples would normally be associated with (47x NTM sales, 67x NTM EBITDA, 110x NTM P/E)."
As a result it raised its valuation on Pro Medicus to $27.50 and stuck with a 'neutral' rating.
Yesterday, and many times over the past few years I covered a number of quantitative (profit margins, etc) and qualitative (founder led, etc) reasons why Pro Medicus looks one of the best mid-cap growth businesses on the local market.
Over the past 18 months as the company has grown larger by market value it has benefited from more sell-side broker coverage as this in turn brings it to the attention of a wider retail and institutional investor base.
Moreover, as at June 24 2018 it joined the S&P/ ASX200 Index of Australia's leading listed companies, which means passive index tracking funds must own a small part of the stock to replicate equal index weightings inside their ETF offerings.
As the S&P/ ASX200 is one of the most popular indices to track in Australia this in turn added to the upward share price.
Overall then I wouldn't suggest buying Pro Medicus shares at $30 as its valuation has got ahead of itself for now.
If you're interested in the software-as-a-service space Xero Limited (ASX: XRO) or Infomedia Limited (ASX: IFM) offer better value in my opinion.
