The Pro Medicus Limited (ASX: PME) share price nosedived on Friday as its founders sold 1 million shares at an offer price of $36.10 per share. Pro Medicus is a longstanding market darling and has delivered eye-watering returns for many investors and traders.
So, does this sell-down present investors with an opportunity to enter this leading health imaging company or a discount trap?
A closer look at the Pro Medicus sell-down
The most recent and significant sell-down that comes to mind before Pro Medicus is from Afterpay Touch Group Ltd (ASX: APT). Back in June as part of the company’s capital raising, Afterpay announced that its three executives had sold a collective 4.5 million shares to two cornerstone US investors, Tiger Management and Woodson Capital. This sell-down represented approximately 2% of issued capital. By comparison, the Pro Medicus sell-down represents just under 1% of issued capital. If we fast forward to today, the Afterpay share price is hitting new all-time highs.
The context is arguably very different in this instance. Pro Medicus founders still hold more than a quarter of the company, or some $900 million of Pro Medicus shares. However, the company cited that it was the board that had encouraged the founders to consider selling up to 3 million shares each, in order to improve the liquidity in the company’s shares. Is “improving liquidity” a justifiable reason to offload shares at all-time highs and a stretched valuation?
What happened to Pro Medicus shares as a result?
On Friday, the Pro Medicus share price was only down 3% in the morning before panic set in and the shares started sliding to close down 12%. I believe if the share price bounces or stabilises today – which it is looking like doing, with shares currently up 3.71% on Friday’s close – then it could be an indicative bottom. However, if the share price continues to slide, then it could take many weeks or months to recover.
In the grand scheme of things, Pro Medicus is a cutting edge company with a diverse business model in licensing, processional services and support. Its Visage 7 AI introduces the exciting ‘tech’ element into traditional healthcare services. The company’s first large scale Visage 7 Open Archive in the United States acts as a high-performance imaging archive, enabling the archiving of diagnostic imaging and support, and is setting a new industry benchmark in archiving solutions. Pro Medicus has a bright future ahead, however investors may experience short-term share price volatility as it digests the sell-down.
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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T 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. 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.