Pro Medicus Ltd (ASX: PME) shares started the week on a positive note, rising 1% to $176.64. The healthcare technology stock has delivered an impressive 35% gain over the past month, though it remains down around 36% from its highs of 12 months ago.
After such a strong rebound, investors may be wondering whether it's time to lock in profits or whether the rally still has further to run.
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Why have Pro Medicus shares surged?
The recent share price strength reflects growing confidence in the company's growth outlook and its ability to continue winning major contracts in the highly competitive healthcare technology market.
Pro Medicus develops medical imaging software used by hospitals and healthcare networks around the world. Its flagship Visage platform enables clinicians to access and analyse medical images quickly, helping improve workflow efficiency and patient outcomes.
The company's biggest advantage is its competitive moat. Pro Medicus has built a reputation for delivering faster and more efficient imaging solutions than many rivals. Once a hospital adopts its platform, switching providers can be costly and disruptive, creating strong customer retention and annual recurring revenue opportunities.
Turning a corner
The price of Pro Medicus shares turned a corner in early June when Pro Medicus announced three significant contract wins.
These included a new seven-year, $16 million agreement with TidalHealth, a five-year $28 million contract renewal with Allegheny Health Network (AHN), and a five-year $16 million contract renewal with Ohio State University (OSU).
The announcements reinforced the market's confidence in both the quality of Pro Medicus' technology and its ability to retain major customers. They also highlighted the company's growing presence in the US, which remains its most important growth market.
Valuation and competition risk
Despite its impressive track record, Pro Medicus is not without risks.
Valuation remains the most obvious concern. Even after last year's pullback, Pro Medicus shares continue to trade on a premium multiple relative to most ASX-listed healthcare stocks. That leaves little room for disappointment.
The business is also heavily reliant on winning and renewing large contracts. While management has consistently delivered in this area, any slowdown in contract activity could weigh on investor sentiment.
Competition is another factor to watch. The medical imaging market remains attractive, and rivals continue to invest heavily in their own technology offerings.
Finally, Pro Medicus generates a significant portion of its revenue from the US. Changes in healthcare spending, hospital budgets, or economic conditions could influence future growth rates.
What do analysts think?
Many market experts believe the rally may not be over.
TradingView data shows that 12 of 15 brokers currently rate the ASX healthcare stock as a buy or strong buy. The average price target sits at $189.47, implying around 8% upside from current levels.
Macquarie is among the most optimistic. The broker has an outperform rating on Pro Medicus shares and a price target of $221 per share. If achieved, that would represent potential upside of approximately 27%.
