The Pro Medicus Ltd (ASX: PME) share price has done incredibly well over the long term. In just the last five years the ASX share has seen its share price climb by around 560%, while the S&P/ASX 200 Index (ASX: XJO) has only risen by 16% in that same time period.
For investors that have owned Pro Medicus shares for a long time, the value of their holding has increased dramatically.
It's almost unbelievable, but an investment in Pro Medicus shares has turned $10,000 into $250,000. Of course, past performance is definitely not an indicator of future returns with this ASX share.
Before today's Pro Medicus share price movements, it had reached $71.54. If we had invested in the first half of October 2015, when the ASX share was trading under $3 and held to today, it would have generated a return of more than 2,400%.
If we had invested $10,000 at the time, it'd have grown to a value of $250,000. That's not even including all of the (rapidly growing) dividends that Pro Medicus has paid.
There are very few businesses on the ASX, and not many in the world, that have made a return of at least 2,400% over the same time period.
How did the ASX share do it?
Pro Medicus is a healthcare informatics company, offering a full range of medical imaging software and services to hospitals, imaging centres and healthcare groups. Visage Imaging is the key software that the company provides.
Back in the FY15 accounts, the business showed that its gross profit margin was 99%, which is incredibly high. It also reported a profit before tax margin of 29%. It made $17.49 million in revenue and $5.1 million in profit before tax in FY15.
What that says is that the business was able to turn almost all of its revenue into usable profit to spend on growth and/or enable a higher profit before tax margin. If it could grow its revenue, then profitability would seemingly soar.
In the last several years, Pro Medicus has won a large number of multi-year contracts with large health organisations in the US and Europe.
For example, in April 2016 the ASX share announced an A$21 million contract with US-based Mercy Health, in July 2016 it signed an A$18 million contract with Mayo Clinic, in November 2018 it signed an A$27 million contract with Partners Health and in September 2020 it announced a $25 million contract with NYU Langone.
FY23 progress for Pro Medicus shares
In FY23 the company had grown revenue to $124.9 million, up 614% since FY15. It also said that its profit before tax margin (on customer contract revenue) had improved to 69%. The profit before tax was $86.1 million in FY23, up 1,588% from FY15.
The rise has largely been driven by an increase in profitability, though it appears an increase in the price/earnings (P/E) ratio also seems to be partly responsible.
Identifying an ASX share that has a high gross profit margin, has a strong offering for customers and can significantly grow revenue could be a winning combination for long-term returns.
Pro Medicus has already delivered huge growth, so it becomes much more difficult to keep growing strongly in percentage terms from here. But, with its strong margins and ongoing contract wins, the future looks very bright for profit growth.