Pro Medicus Limited (ASX: PME) shares are now down around 40% over the last three months after tumbling from a high of $38.38 printed in September 2019.
Just days after it hit a record high the company's two co-founders in Anthony Hall and Sam Hupert sold 1 million shares each at prices around $36 per share.
Any institutional investors on the other side of the block trades that totalled 2 million shares for around $72 million will now be nearly 40 per cent underwater and a little red faced.
It's possible some of the shares were taken up by index tracking funds that are mandated to buy securities that make up the constituents of an index regardless of value.
On June 24 2019 for example Pro Medicus joined the S&P/ ASX200 Index (ASX: XJO) and it's one of the most widely tracked in Australia by low-fee passive investment funds.
When share market valuations get disjointed from reality the outcome is predictable as professional investors sell and valuations crash.
Even at $22.45 Pro Medicus is valued at $2.34 billion by the market despite posting a profit of just $19.1 million on sales of $50.1 million over FY 2019.
That means shares change hands for 47x trailing sales or 123x trailing diluted earnings of 18.32 cents per share.
This is sky-high using conventional metrics, or even using unconventional valuation metrics that are often used to justify the valuations of software-as-a-service businesses.