The Pro Medicus Ltd (ASX: PME) share price has dropped another 7% today, meaning it's now down more than 16% in March 2025, as the chart below shows. When great businesses fall, it's good to ask whether they're an opportunity.
This company provides a full range of medical imaging software and services to hospitals, imaging centres and healthcare groups worldwide. The company offers a suite of radiology information systems (RIS), picture archiving and communication systems (PACS) and Artificial Intelligence (AI).
Pro Medicus shares have fallen close to 30% since 19 February 2025. While that's a big decline, that's back to where it was in November 2024. It's still up more than 20% in the past six months.
Could the Pro Medicus share price continue falling?
No-one has a crystal ball to tell what's going to happen next. Shares go up and down in price every week. There can be quite dramatic swings in a relatively short amount of time, if they react to business updates or wider economic issues.
Investors seem worried about what's going on with the US' tariffs (amid other issues in the US) and how that could have negative flow-on effects. Various ASX growth shares have seen declines in recent weeks.
One of the main (and only) criticisms, in my opinion, that could be said about Pro Medicus shares is that it trades on a high price/earnings (P/E) ratio. For example, even after the decline, the Pro Medicus share price is trading at 198x FY25's estimated earnings, according to Commsec.
Is it a buying opportunity?
The reason why the market is still pricing Pro Medicus so highly is because of its excellent business qualities, track record of winning contracts and profit growth outlook.
Pro Medicus achieved an enormous operating profit (EBIT) margin in the HY25, with an EBIT margin of 71.9%. That means more than 70% of new revenue is turning into operating profit, which is really appealing, in my view.
It has won numerous new contracts in the last 12 months, including some large ones like the $330 million contract with Trinity Health. I think this is a good indicator that it can continue to win contracts from some of the largest health institutions in the US in the coming years.
The lower it goes, the better value it is. To me, it's quite clear that profit is going to keep rising in the next few years as these newly won contracts start contributing to the company's financials.
It'd be a mistake to think that short-term declines mean the business can't recover, in my view. The HY25 result saw net profit after tax (NPAT) climb by 42.7% to $51.7 million – if profit continues growing at a strong pace, it'll grow into its valuation.
While its near-term earnings are valued highly, the long-term earnings could be undervalued if the company wins more huge contracts, makes more progress outside of the US and expands into other areas. For example, it has made progress with its cardiology offering, signing its first contract for its new cardiac echo-package. It's also making progress with its AI projects.
I think the decline is a buying opportunity for brave, long-term investors. It could fall further, but its long-term outlook seems very compelling to me.
