The Pro Medicus Ltd (ASX: PME) share price has been one of the hardest-hit over the past year, down 56%, as the chart below shows.
But the medical imaging and services software business may have been oversold, according to experts. For starters, we should remember that the business has very defensive clients including hospitals, imaging centres and healthcare groups, so demand for services remains strong year to year.
The company has a pleasing outlook for both revenue and profit growth, which could bode very well to regain investor confidence. Let's look at how undervalued the business could be.
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Pro Medicus share price target
A share price target is where analysts think the share price could go within the next 12 months. But, it's just an analyst's estimate based on various factors (including the company's fundamentals) – it's not a guaranteed return.
According to CMC Invest, there have been eight ratings on the business within the last three months. Of those ratings, seven were buys, and one was a hold.
The average price target of those eight ratings is $196.73, suggesting a possible rise of 61% in the next year from where it is at the time of writing.
The most exciting price target is $241.89. This suggests the Pro Medicus share price could almost double within the next year.
At the other end of the spectrum, the lowest price target is $143.14. This still suggests a possible rise of 17%.
Valuation
Let's also look at the price/earnings (P/E) ratio because it's important to consider whether the company is attractive or not, bearing in mind its potential earnings growth.
It's hard to know how much AI competitors will affect the software industry in the coming years, but analysts are still positive on the company's potential.
According to the projection on CMC Invest, the business is forecast to generate earnings per share (EPS) of $1.372 in FY26 and $1.863 in FY27.
That means it's valued at 89x FY26's estimated earnings and 65x FY27's estimated earnings. The projection also suggests that the business could grow EPS by 35.8% year-over-year in FY27.
If the company continues winning new customers (and renewing contracts on better terms), and retaining an underlying operating profit (EBIT) margin above 70%, then I think the company's net profit could rise significantly from here. This could justify the most optimistic analysts' projection.
