The Pro Medicus Limited (ASX: PME) share price has rocketed around 36x over the past 5 years from 96 cents to $35.90 today to give it a market value around $3.73 billion based on 103.98 million shares on issue.
That’s more than household names like Domino’s Pizza Enterprises Ltd (ASX: DM) that has a market cap of $3.65 billion, or Bank of Queensland Ltd (ASX: BOQ) that has a market value of $3.7 billion.
Let’s take a quick look at some key operating metrics for the three companies below to see how they compare to each other.
Bank of Queensland
FY 2018 (calendar year) profit and growth: $372 million, -2%
FY 2018 sales and growth: $1,110 million, +2%
Trailing price to earnings ratio: 11.2x
Company quality: A regional lender with a return on equity of 9.9% and a net interest margin of 1.98% that shows the stiff competitive environment it operates. Other macro factors counting against it include the slowing housing market and local economy.
FY 2019 underlying profit and growth: $141.2m, +6.1%
FY 2019 sales and growth: $2.9b, +11.9%
Trailing Price to earnings ratio: 31.2x
Company quality: Generally considered a well run business even if it has made a recent habit of missing ambitious profit forecasts. Net debt stands at a loft $514 million which is something I’m not keen on, although in compensation the “adjusted” return on equity is a lofty 44.9% for FY 2019.
FY 2018 profit and growth: $19.1m, +92%
FY 2018 sales and growth: $50.1m, +48%
Trailing price to earnings ratio: 163x
Company quality: Generally considered a high-quality business operating on very high profit margins that suggest its economics, moat and product quality are strong. It’s also regarded as having a strong outlook backed up by the large US and global market opportunity ahead. No debt and a return on equity of 39% are the cherry on top.
I must admit this is a rather crude analysis, but it should show to less experienced investors why the market values different businesses in different ways.
Generally if any company like Pro Medicus can nearly double its profits over a number of years it’s likely to be very highly-prized by investors.
While a business like BOQ is rated far cheaper, but on a price to earnings ratio of 9.9x you’d only have to wait 9.9 years to get your money back in earnings for every $1 invested assuming profits stay flat.
If they grow even just a little but consistently over the long term you’re likely to make handsome returns at a much better risk adjusted rate than Pro Medicus. And just compare the current net profits between the two.
Domino’s is the business in the middle of the two that still trades on a relatively high PE, but has a track record of very strong profit growth.
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Tom Richardson owns shares of Pro Medicus Ltd.
You can find Tom on Twitter @tommyr345
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 has recommended Domino's Pizza Enterprises Limited. 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.