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Why the Pro Medicus (ASX:PME) share price could be in the buy zone

The Pro Medicus Limited (ASX:PME) share price may be up strongly in 2021, but it could still be a growth share to buy right now…
The post Why the Pro Medicus (ASX:PME) share price could be in the buy zone appeared first on The Motley Fool Australia. –

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Are you wanting to add a growth share or two to your portfolio this week?

Then you might want to take a look at Pro Medicus Limited (ASX: PME).

What is Pro Medicus?

Pro Medicus is a healthcare technology company that provides radiology information systems (RIS), picture archiving and communication systems (PACS), and advanced visualisation solutions to healthcare organisations globally.

The company’s RIS offering covers everything from medical accounting, clinical reporting, appointments, scheduling, marketing and management information applications.

But the key product in its arsenal is arguably the Visage 7 Enterprise Imaging Platform. It is fast, clinically rich, and highly scalable growth platform deliverable entirely from the cloud or on premise.

Management notes that Visage 7 supports the simplicity of a One Viewer philosophy, that enables diagnostic, clinical, specialty, research, and mobile imaging workflows from a singular platform. It also offers future-proof flexibility with enterprise workflow, vendor-neutral archive, and artificial intelligence solutions that are all 100% native to Visage 7.

Strong demand

Due to the quality of this technology and the need for healthcare organisations to shift away from legacy systems, Pro Medicus has been winning a lot of lucrative contracts.

This has underpinned strong earnings growth, even during the pandemic.

For example, for the six months ended 31 December, Pro Medicus delivered a 7.8% increase in revenue to $31.6 million and a 25.9% jump in underlying profit before tax to $18.76 million.

Positively, since the end of the half, the company has continued to win a number of lucrative long term contracts with major healthcare institutions.

Can the Pro Medicus share price climb higher?

Although the Pro Medicus share price is up 33% since the start of the year, one leading broker believes it can still go higher.

In February, Goldman Sachs upgraded Pro Medicus’ shares to a buy rating with a $53.80 price target. This price target implies potential upside of 15% over the next 12 months.

Goldman believes it is well-positioned to grow its earnings at a rapid rate over the coming years.

It explained: “Whilst not cheap in absolute terms, our new estimates imply a +42% EBITDA CAGR (FY20-23E). In the context of ASX Healthcare, which trades at a ‘multiple to growth’ ratio of 2.9x, we do not see PME’s ratio of 1.4x as demanding, particularly given its position as a technology leader in a market we believe is set for further technology upgrades, and a recurrent revenue model with inherent upside.”

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia has recommended Pro Medicus Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Pro Medicus (ASX:PME) share price could be in the buy zone appeared first on The Motley Fool Australia.

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