Healthcare shares have been among the biggest fallers on the ASX over the past year. Two of the sector's biggest names — CSL Ltd (ASX: CSL) and Pro Medicus Ltd (ASX: PME) — have both seen their share prices slump heavily. They declined roughly 40% or more over the past 12 months.
When CSL and Pro Medicus shares fall this far, investors often start asking the same question: is this a buying opportunity, or a sign that more downside is ahead?
Here's a closer look at both ASX healthcare shares.
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CSL: Global plasma leader
CSL is one of Australia's most successful global healthcare companies. The biotechnology giant specialises in plasma therapies, vaccines, and treatments for rare diseases through divisions such as CSL Behring and Seqirus.
One of the biggest strengths of the $68 billion CSL shares is its dominant position in the global plasma therapies market. The company also has multiple growth drivers. Demand for immunoglobulin therapies continues to rise globally, while its vaccines division provides additional diversification.
CSL's long history of research and development investment also supports its pipeline of new treatments, which could drive long-term earnings growth.
Despite its strengths, CSL has faced several challenges in recent years. Rising plasma collection costs, setbacks in its research pipeline, and the integration of its Vifor acquisition have weighed on investor sentiment.
There is also growing competition from new therapies targeting similar disease areas. This could eventually affect demand for some of CSL's core products.
Another factor is investor expectations. As a former ASX market darling, CSL shares historically traded at a premium valuation, making the share price particularly sensitive when growth slows.
UBS thinks that the current valuation is appealing. The broker has maintained a buy rating on CSL shares, with a 12-month price target of $235. This points to a potential upside of 67% from recent levels.
Pro Medicus: Advanced radiology system provider
Pro Medicus is the third largest ASX healthcare stock, behind ResMed and CSL shares. The company develops imaging software used by hospitals and radiology providers around the world.
The flagship of Pro Medicus, Visage imaging platform, is widely regarded as one of the most advanced radiology systems available. As a result, the company signed two key five year contracts last week with a combined minimum value of $40 million.
Pro Medicus also operates a highly scalable software model with extremely strong margins and long-term contracts with large US hospital networks.
Another advantage is the company's strong balance sheet. Pro Medicus has historically carried little to no debt while continuing to generate strong earnings growth.
The biggest concern for investors is the valuation of the little sister of CSL shares. Even after its sharp share price fall, Pro Medicus has often traded on extremely high earnings multiples, reflecting expectations for years of strong growth.
Because of this premium valuation, even solid financial results can sometimes trigger share price declines if they fail to exceed lofty expectations.
The company also relies on winning large hospital contracts to maintain its growth trajectory, which can lead to periods of volatility if new deals take longer than expected.
However, most analysts are positive on the healthcare stock. TradingView data show that analysts have an average 12-month price target of $218.44. This indicates 65% potential upside at the time of writing.
