Is the Pro Medicus (ASX:PME) share price a buy after its contract win?

The Pro Medicus Limited (ASX:PME) share price is up 17% since the start of the year. Can it keep on climbing higher from here?

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The Pro Medicus Limited (ASX: PME) share price overcame weakness in the tech sector on Thursday and pushed higher.

The health imaging software provider’s shares rose 1.5% to $41.15.

This latest gain means the Pro Medicus share price is now up 17% since the start of the year.

Why did the Pro Medicus share price avoid the selloff?

Investors were buying Pro Medicus’ shares yesterday after it announced another major new contract win.

According to the release, Pro Medicus has signed an 8-year deal with The University of Vermont Health Network worth $14 million.

The deal will see Pro Medicus deploy its Visage 7 Enterprise Imaging Platform across six hospitals operated by the University. Once the system is fully functional, a unified diagnostic imaging platform will run across the network. This will replace the multiple legacy PACS platforms that are currently being used.

What was the reaction?

According to a note out of Goldman Sachs, it was pleased but unsurprised by the contract win.

The broker notes that the contract is the seventh the company has won in the last 11 months, of which four have been fully cloud based.

The latter is important to note, as the broker believes customers are increasingly seeking cloud-deployment and the Visage solution is the only one currently available that can be fully cloud-deployed at scale.

However, one slight concern that Goldman Sachs has is the slow progress being made in the mass-market channel.

It commented: “Whilst we have clearly seen an increased cadence of contract wins through recent periods, the quid pro quo is a potentially shorter runway from here. Visage 7 now operates in 5 of the Top 10 hospitals in US, and has so far shown relatively slower progress in the more price-sensitive, mass-market channel.”

“Whilst we see little reason why Visage 7 can’t penetrate this market more effectively over time, we expect uncertainties around capital budgets to persist across this channel for longer than in the leading academic institutions. Although PME’s larger customers argue that Visage’s price premium is repaid in efficiency gains, the value proposition is likely less compelling for the lower volume facilities, and so we will wait to see evidence of this dynamic playing out before formally accommodating it into our forecasts.”

“Nevertheless, the nature of the recent wins suggests a broadening of interest across different types of customer, which we believe is underpinned by PME’s current technology advantage over peers, and will remain important to the longer-term trajectory,” it added.

Is the Pro Medicus share price good value?

While Goldman hasn’t made any adjustments to its recommendation and forecasts yet, as things stand, it has a buy rating and $53.80 price target on the company’s shares.

Based on the current Pro Medicus share price, this represents potential upside of 31% over the next 12 months.

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James Mickleboro has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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