This ASX 200 healthcare stock is sinking 6% despite explosive first-half earnings growth

Sometimes the market just expects too much from companies.

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The Pro Medicus Limited (ASX: PME) share price is losing its shine on Thursday.

In morning trade, the ASX 200 healthcare stock is down over 6% to $101.37.

This follows the release of the health imaging technology provider's half-year results.

ASX 200 healthcare stock tumbles on results

Here's how Pro Medicus performed over the six months ended 31 December:

  • Revenue up 30.3% to $74.1 million
  • Underlying profit before tax up 31.5% to $48.9 million
  • Net profit up 33.3% to $36.3 million
  • Cash and other financial assets up 8.3% to $131.5 million
  • Fully franked interim dividend up 38.5% to 18 cents per share

What happened during the half?

During the half, the ASX 200 healthcare stock achieved a 30.3% increase in revenue and a 33.3% lift in net profit compared to the prior corresponding period.

Management advised that the result was driven largely by increased revenue from North America (up 36.8%), with four major implementations completed. In addition, it reported above industry growth in exam volumes across its client base.

The good news is that this strong growth looks set to continue. Pro Medicus won four key contracts during the six months. These have a total contract value of $200 million at committed minimum exam volumes and contract terms ranging from 7 to 10 years.

Management commentary

Pro Medicus' CEO, Dr Sam Hupert, was pleased with the half and believes the company's strong growth can continue. He said:

We were very pleased with the results. It was another half of profitable growth where all key financial metrics headed in the right direction. Our transaction-based business model underpinned by minimums and long-term contracts provides us with an annuity stream with each new contract building on the existing base of annual recurring revenue.

On top of that, our clients are growing well above industry average and there is always the potential for them to take additional products from us. So, we believe we will be able to maintain our growth trajectory especially when you consider we have had our strongest six-months of sales in the company's history, with the revenue from these sales still ahead of us.

Outlook

The ASX 200 healthcare stock didn't provide any guidance but Dr Hupert spoke very positively about the company's prospects in the second half. He said:

[We] had our strongest start to the year in terms of sales, so, we believe our second half will be stronger than our first forming the base for future growth in FY2025 and beyond.

Our pipeline is strong across all sectors of the market. Our cloud-based modular approach continues to provide unprecedented flexibility and scalability, as evidenced by the increasing number of clients choosing the full stack of all three Visage products – Viewer, Workflow and Archive, a trend we see continuing.

Overall, a very strong result from the high-flying company. However, It seems that the market was pricing in even stronger growth.

Pro Medicus shares remain up 54% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Pro Medicus. The Motley Fool Australia has recommended Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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