Pro Medicus Ltd (ASX: PME) shares have hit a fresh all-time high in early trade on Monday, climbing to $156.49 early in the session.
They have since pulled back to $156 apiece at the time of writing, extending this year's gains to almost 63%.
Investors are clearly excited, but is now the right time to buy?
Let's take a closer look at what's driving this surge and wether the experts say Pro Medicus shares are worth adding to your portfolio.
What's driving Pro Medicus shares?
Pro Medicus has demonstrated consistent growth in its business, particularly in the US market, which now accounts for nearly 90% of the company's revenue.
The healthcare company has secured major contracts with hospitals and medical institutions worldwide with its proprietary radiology software.
In its FY24 results, Pro Medicus reported year over year revenue growth of 29%, with net profit up 36%.
That means every dollar of sales growth the company booked produced $1.24 of additional net profit for the year.
Management is bullish and sees continued growth in the US moving forward. CEO Dr Sam Hupert claimed Pro Medicus has "a bit over 7% of the total addressable market (TAM) in the US and growing".
It's not surprising to see that investors have sent Pro Medicus shares to new highs following its FY24 numbers.
How high is too high?
The recent surge in Pro Medicus shares brings the price-to-earnings (P/E) ratio to a staggering 196 times trailing earnings.
Consensus estimates project $1.042 per share in earnings for FY25, meaning it trades at about 150 times forward earnings as well.
This level of valuation certainly raises questions about whether the stock is overpriced. While high P/E ratios are often associated with growth stocks, they also come with added risk.
The question is whether Pro Medicus' future growth potential justifies the current premium price.
Goldman Sachs thinks it does. The broker recently reaffirmed its buy rating on Pro Medicus shares.
It says the company's "contract pipeline remains strong" and that it is "well positioned" into FY25 given the contribution of "some large and high profile contracts, in addition to the accelerating frequency and size of new contract wins".
Goldman's is a contrarian view however. The consensus of analyst estimates rates Pro Medicus shares a hold, according to CommSec.
This is made up of three buy ratings, nine hold ratings and two recommendations to sell the stock.
Foolish takeaway
The verdict is mixed on Pro Medicus shares right now. Despite the fact it continues setting new highs, valuations are a concern. Trading at 150 times forward P/E means investors pay $150 for every $1 of the company's earnings.
But when considering the growth outlook of the business, some brokers believe this to be worth it. Others aren't convinced.
Pro Medicus shares are up 114% in the past twelve months.
