The Pro Medicus Ltd (ASX: PME) share price has suffered a 60% decline in the past six months, at the time of writing. For many years, I've considered Pro Medicus to be one of the best businesses in Australia.
However, it's understandable why the market has sent it lower. The company was priced on expectations that its revenue and net profit were going to soar significantly in the coming years.
On a price/earnings (P/E) ratio basis, the Pro Medicus share price may have raced ahead of itself when it soared above $300.
However, at a much lower valuation, I think the business could be an appealing buy. After falling 60%, it could even be called a contrarian buy, though it does still trade on a high earnings multiple.
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Quality growth continues
The ASX share market is normally forward-looking. By sending the Pro Medicus share price down so much, the market is suggesting the future is not as bright for the company.
But, investors are just speculating that the business will suffer from AI-produced competition. They are also assuming the business has no economic moat to fend off competition, despite its wonderful software offering, excellent sales team and powerful financials.
The business delivered a number of impressive numbers in the FY26 half-year result.
Revenue climbed 28.4% to $124.8 billion, the operating profit (EBIT) margin increased to 73% (up from 72%) and the underlying profit before tax climbed 29.7% to $90.7 million.
What other ASX share that's the size of Pro Medicus (or larger) can point to that level of success?
It continues to win new contracts, sell additional modules to existing clients and it disclosed its pipeline remains "very strong".
Based on the numbers and commentary, it seems the business is still well-positioned to deliver excellent profit growth. AI doesn't seem to be affecting the company's progress and it's still winning contracts that can help push profit even higher.
The company's quality is not in doubt, in my view.
The Pro Medicus share price valuation is now much better
Commsec's projection suggests the business could generate earnings per share (EPS) of $1.42 in FY26 and $1.85 in FY27.
That means the company is now valued at 82x FY26's estimated earnings and 63x FY27's estimated earnings.
That's not the lowest P/E ratio around, but it's now dramatically lower. For any investor who has wanted to buy Pro Medicus shares, this is now a great chance to jump in.
Pro Medicus can continue to improve its software, possibly by using AI itself, and stay ahead of any potential challengers. I think the company's future may now be underestimated by the market and therefore undervalued.
