Medical imaging software company Pro Medicus Ltd (ASX: PME) has fallen sharply from its highs.
On the surface, it looks like a stock in trouble.
Dig into the numbers, however, and a very different picture emerges.
This is a business that is still growing revenue at nearly 30% per year, winning major new contracts, and generating margins many technology companies can only dream of.
The market has punished the share price but the business itself has barely missed a beat.
Image source: Getty Images
What actually happened
Pro Medicus shares sat at $230 per share earlier in 2026 before a brutal sell-off took hold.
Two forces drove the decline.
First, a broader rotation away from expensive technology and growth stocks hit high-multiple names hardest across the ASX.
Second, the company's first half FY2026 result. While strong, the numbers came in slightly below elevated market expectations due to higher staff costs and a smaller-than-anticipated contribution from its landmark Trinity contract.
With high expectations already baked into the share price, that was enough to send the stock sharply lower.
The fundamentals remain exceptional
But the underlying results also showed some very promising signs.
Revenue grew 28.4% to $124.8 million for the half, with underlying profit before tax rising 29.7% to $90.7 million.
Pro Medicus maintained an EBIT margin of 73%, one of the highest of any listed technology company in Australia.
The company signed more than $280 million in new contracts during the half, including a $170 million ten-year deal with the University of Colorado and a $37 million five-year renewal with Northwestern Medicine that came with higher fees per transaction.
Five-year contracted revenue now sits at approximately $1.1 billion, giving the business extraordinary earnings visibility.
Brokers see significant upside
The broker community has stayed firmly behind the stock through the sell-off.
Morgan Stanley carries a price target of $210, while Bell Potter sits at $226. Both imply meaningful upside from current levels.
Morgans reaffirmed its buy rating after the half-year result with a price target of $275, noting that the longer-term growth outlook had actually strengthened from the wave of significant contract wins.
Foolish Takeaway
Pro Medicus is not a cheap stock, and there are high expectations for future growth already baked into its share price.
What investors get when buying Pro Medicus shares is a world-class software business with a sticky customer base, extraordinary margins, and a growing contracted revenue backlog.
What's more, Pro Medicus' dominant position in a market will only get larger as healthcare digitisation accelerates globally.
For Fools who can handle volatility and think in years rather than months, the current price could be a genuinely interesting entry point.
