Pro Medicus Ltd (ASX: PME) shares are swapping hands at $123.22 apiece, up 2.6% at the time of writing. In the last 12 months, the ASX 200 share has soared 99.9% into the green, surpassing the S&P/ASX 200 index (ASX: XJO)'s rise of 7.7% in that time.
The astronomical run has cemented Pro Medicus' status as one of the priciest stocks on the ASX. It currently trades at a trailing price-to-earnings ratio (P/E) of 171.5 times. In other words, investors are paying $171.50 to buy $1 of the healthcare company's earnings.
This is more than nine times greater than the current iShares Core S&P/ASX 200 ETF (ASX: IOZ) P/E of 18.2.
Why the optimism?
According to analysts covering the ASX 200 share, the company's high valuation is matched by equally impressive fundamentals, making it a stock worth considering. Let's take a look.
Why this ASX 200 share is soaring
Brokers are bullish on this ASX 200 share thanks to several tailwinds behind the company. These include sales from its flagship software, Visage 7, alongside customer contract wins.
Visage allows radiologists to view large medical image files on mobile devices. This enhances diagnostic efficiency and enables a radiologist to see a patient's scan from anywhere in the country.
The ASX 200 share is profitable too. It produced an earnings before interest and tax (EBIT) margin of 66% and a net profit after tax (NPAT) margin of 49% for the first half of FY 2024.
Barrenjoey analyst Josh Kannourakis has done the analysis and is bullish on the company's outlook.
Speaking to the Australian Financial Review, Kannourakis said Pro Medicus' underlying economics are "better than any other that I've seen both in terms of the unit economics [and] structure of contracts".
And when this revenue is recognised, it is on "close to 100% gross margin", he said.
Goldman Sachs also recently reiterated its buy rating on Pro Medicus, with an improved price target of $136 per share.
Goldman highlights the company's recent contract wins, including five new deals with a minimum total contract value of $245 million this financial year. The broker believes it is well-positioned to capture more market share.
Finally, analysts at Bell Potter also raised the firm's target on Pro Medicus to $115 per share on Friday. The broker is so convinced of the company's outlook that it completely changed its position – from a sell with a $75 per share price target to a buy rating.
Not all positive views
Given its current valuation, some analysts are treading cautiously. As mentioned, the ASX 200 share currently sells at a P/E of 171.5.
Morgans' Patrick Chan offers a more cautious view of the company's valuation. He called Pro Medicus "one of the world's most expensive stocks" despite acknowledging its impressive performance and strategic wins, according to the AFR.
"I think it's overpriced", he said. "[B]ut in saying that, I think it's the best business on the ASX, and you can't put a sell on it".
"You might just trim around the edges, but hold long-term."
Still, Morgans has set a price target of $85 on the ASX 200 share, well below Pro Medicus' current share price at publication.
Is this ASX 200 share a buy?
Based on its P/E ratio, Pro Medicus is one of the most expensive stocks globally. However, according to leading brokers, it could still offer significant growth potential.
To date this year, its share price has rallied 27% into the green. At the time of writing, it has also outpaced the benchmark index return by 90% over the past year of trade.
As always, wise investors consider the risks of overpaying. It is crucial to weigh the high valuation against the company's proven track record and future prospects.
