As the year comes to a close, I've been reviewing the businesses I want to own for the next stage of my investing journey. These will be the ASX 200 stocks I believe can compound value over many years.
One that continues to stand out is Pro Medicus Ltd (ASX: PME).
Despite its exceptional long-term track record, Pro Medicus shares are now trading around 33% below their 52-week high. For a business of this quality, that pullback has caught my attention and is a key reason the stock is firmly on my buy list as we head into 2026.
A best-in-class product
At the heart of the Pro Medicus investment case is its Visage platform, which provides enterprise medical imaging software to hospitals and healthcare systems.
Imaging volumes are increasing, data files are becoming larger, and clinicians are under growing pressure to work more efficiently. Visage is designed to address these challenges by delivering speed, scalability, and reliability in mission-critical environments.
Once implemented, the software becomes deeply embedded in hospital workflows. That creates long-term contracts, high switching costs, and a strong base of recurring revenue. These are exactly the characteristics I look for in a long-term compounder.
A long runway still ahead
What I find particularly compelling is how much opportunity remains.
Pro Medicus continues to expand its footprint in North America, the world's largest healthcare market, and management has confirmed that much of the revenue from recently signed contracts is still to be recognised. That provides a visible growth runway into future years.
Importantly, the company is not standing still within radiology alone.
Expanding into cardiology and other "ologies"
The ASX 200 stock has highlighted cardiology as an increasingly important part of the Pro Medicus offering. Cardiology formed a meaningful component of the $170 million UCHealth contract from earlier in 2025.
What stands out is that the cardiology solution is built on the same code base as the Visage platform, rather than being a separate product. This allows customers to operate radiology, cardiology, and other imaging workflows within a single, unified system, reducing complexity and improving efficiency.
Beyond cardiology, Pro Medicus has confirmed it is developing solutions for other clinical areas, including digital pathology. Like cardiology, these offerings are designed to sit within the same cloud-native platform.
Management has framed this expansion as a way to increase the value of existing customer relationships, allowing hospitals to add new capabilities without adopting multiple systems. From an investor's perspective, this builds directly on the technology and execution the company has already proven.
Exceptional economics support compounding
Growth alone isn't enough; the quality of that growth matters.
Pro Medicus operates with very high margins, strong cash generation, and minimal capital requirements. Incremental revenue largely flows through to profits, creating powerful operating leverage as the business scales.
That combination of recurring revenue, premium pricing, and disciplined reinvestment is exactly what enables long-term compounding.
Recent pullback improves the risk-reward
There's no denying Pro Medicus has historically traded on a premium valuation. The market has long recognised the quality of the business.
However, the recent share price pullback has begun to rebalance the equation. While the stock still isn't cheap, the gap between business quality and market expectations has narrowed, which is something long-term investors should pay attention to.
Foolish Takeaway
In my opinion, Pro Medicus is one of the highest-quality stocks on the ASX 200 Index. It has a world-class product, deeply embedded customers, expanding clinical applications, and outstanding financial economics.
With shares well below recent highs, I believe the risk-reward profile has become more attractive for patient investors. As we move into 2026, Pro Medicus is exactly the kind of business I plan to buy and hold for the long term.
