Pro Medicus Ltd (ASX: PME) shares had a terrible day at the office on Thursday and crashed deep into the red.
The health imaging technology company's shares ended the day 24% lower at a multi-year low of $129.00.
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What happened?
Investors were selling the company's shares following the release of its half-year results.
Unfortunately, it was a case of strong but not strong enough for this one, with its record results falling short of expectations.
But while an earnings miss as software stocks are being sold off due to artificial intelligence (AI) disruption concerns is bad timing, the level of the selling has many analysts believing it was a severe overreaction from investors.
One of those is Morgans, which is urging investors to pick up Pro Medicus shares while they are down in the dumps.
Let's see what the broker is saying about this ASX tech stock after digesting Thursday's results.
What is the broker saying?
Morgans notes that Pro Medicus delivered a record result with revenue and underlying earnings before interest and tax (EBIT) rising by approximately 30% over the prior corresponding period.
However, this missed consensus expectations due to higher staff costs and a smaller contribution from the mammoth Trinity contract.
The broker thinks investors should overlook this, especially with its longer-term growth outlook being strengthened from significant contract wins.
Commenting on the result, the broker said:
PME delivered record revenue and underlying EBIT up ~30% YoY, yet the result fell short of expectations on operating leverage with a jump in staff costs driving an EBITDA miss as Trinity contributed less than anticipated. The longer-term outlook strengthened with more than A$280m of new contracts signed and five-year contracted revenue now around A$1.1bn, though the market remains wary of a heavy 2H execution load and cost base increase.
It is not ideal to deliver a miss in this market, but the reaction feels overcooked and the setup into 2H is far better than the share price implies. Our valuation is reduced to A$275 (from A$290) and we retain our Buy recommendation.
As you can see above, in response to the results, Morgans has reaffirmed its buy rating on Pro Medicus shares with a trimmed price target of $275.00 (from $290.00).
Based on its current share price of $129.00, this suggests that its shares could more than double in value between now and this time next year.
