The Pro Medicus Limited (ASX: PME) share price is under pressure on Monday.
At the time of writing, the healthcare technology company's shares are down 5% to $59.00.
Despite this, Pro Medicus' shares are still up 68% in 2021.
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Why is the Pro Medicus share price tumbling?
The weakness in the Pro Medicus share price today appears to have been caused by a broker note out of Goldman Sachs.
According to the note, the broker has downgraded the company's shares to a sell rating with a slightly reduced price target of $54.00.
Based on the current Pro Medicus share price, this represents further potential downside of 8.5% over the next 12 months.
Why did the broker downgrade its shares?
Goldman Sachs made the move on valuation grounds, believing it is hard to justify the premium the Pro Medicus share price is trading on.
Goldman explained: "Whilst we saw nothing in the FY21 result to discourage an existing positive view, we also failed to see sufficient positive surprise to justify such a strong share price reaction (+15% vs. ASX200 -1%). If valuation were no consideration, we would still be Buy-rated, reflective of a market-leading product and strong, frequent validation from a stellar customer list."
"However, in our sector-relative framework, we do not have sufficient visibility that recent win-rates can be sustained (we believe there are fewer, large opportunities addressable in the near-term), and, if growth tapers beyond FY22E (as currently forecast), we believe the market will increasingly struggle to justify current levels (63x NTM sales; +14% CAGR FY22-25E)," it added.
In addition, the broker notes that momentum from competitors has been improving.
The broker explained: "Whilst primarily a call on valuation, we note that recent momentum from competitors has been improving, and also that, after an extended period of success, the natural runway of top-tier institutions is shortening (now in 9 of top 20 hospitals, the channel in which Visage 7 is most beneficial)."
