Why Do Stocks With Better Fundamentals Trail Their Peers? And When Should You Accept Waiting for a Re-Rating Is a Lost Cause?

Stocks with better fundamentals trail their peers – that’s just the reality of the market. But why?

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Case in point

Last week, it was another day another 4DX Medical (ASX:4DX) re-rating, all because the Mayo Clinic agreed to use its CT:VQ software. Highly symbolic, no doubt, but hardly material revenue generating (at least not right away). Yet how many other companies are revenue generating but don’t get the re-rating? We saw some investors in Alcidion (ASX:ALC) questioning why it doesn’t get any plaudits.

And it is a fair question. ALC generates tens of millions of dollars of revenue, something 4DX cannot say. The only sentence you can mention 4DX and ‘tens of millions of dollars’ in as far as fundamentals are concerned is its bottom line.

The reality

But there are several distinct forces at work here. First of all, these are business at different stages with Alcidion now on the market. Investors in early-stage companies like 4DX (early-stage in relation to commercialisation even if the development stage is anything but early) are not buying what the business earns now. They are buying an option on what it could earn if the market converts.

4DMedical secured FDA clearance for its CT:VQ technology in September 2025 and, critically, gained reimbursement eligibility from the US Centres for Medicare and Medicaid Services. This combination unlocked the American healthcare system, where reimbursement is the gating requirement for commercial viability. The US lung imaging market alone was valued at more than $30 billion in pre-COVID conditions. The market is now pricing 4DX as a company with access to that TAM. Alcidion’s NHS and ANZ contracts are real but bounded, so the addressable market story is smaller and the growth path is slower.

In those two announcements and others (including the Philips partnership) 4DX delivered a series of binary, datable events. Each one moved the stock and attracted fresh coverage. Alcidion operates in NHS procurement cycles, which are long, opaque, and rarely produce a single day of news. Alcidion often boasts of strong contracted revenue, but it is ‘contracted revenue’ for a reason; the revenue has not yet been received. What’s more exciting: “Contract progressing through procurement” or “FDA cleared”? Judge yourself.

Alcidion’s profile (as a company with recurring revenue, government clients and near-breakeven) suits patient, fundamentals-orientated value investors. In a risk-on market with abundant speculative capital, those investors are structurally outbid by momentum capital chasing binary events. The result is that the “safer” business often carries a lower multiple than the high-risk one, because it lacks the narrative hook that attracts the largest pools of capital.

One final point: institutions cannot meaningfully build a position in a company with a sub-$150m market cap like ALC without moving the price. So the stock mostly sits with retail and small-fund holders, limiting re-rating potential until a genuine catalyst arrives, and a slight improvement in fundamentals typically is not enough. A substantial improvement in fundamentals? Yes, perhaps! But there’s a difference between slight and substantial.

This is not intended to be an exhaustive list of all the reasons, but we think the ones we’ve mentioned are the most important.

Three Comparable Situations

1. Objective Corporation (ASX:OCL) vs TechnologyOne (ASX:TNE)

Both of these companies sell enterprise software to Australian and UK government clients. Both have highly sticky, multi-year contracts and recurring SaaS revenue. TechnologyOne has become a $10B+ company on a compelling SaaS migration narrative, analyst coverage, and consistent double-digit growth communication. Objective has similar government stickiness and solid cash generation, but trades at a fraction of the multiple. The businesses are structurally similar; the narrative premium is not.

2. Audinate (ASX:AD8) vs Pro Medicus (ASX:PME)

There are tonnes of businesses where investors could be asking,’ Why don’t we trade like Pro Medicus?’ Pro Medicus sells radiology imaging software and trades at over 100x earnings (one of the highest multiples on the ASX) on the back of US hospital contract wins and an AI-adjacent imaging story.

We picked Audinate because it is equally dominant in its niche (audio-visual networking hardware and software), with high gross margins, a deep moat, and recurring licensing revenue. The valuation gap between the two is enormous and driven almost entirely by Pro Medicus’s ability to attract healthcare/AI narrative capital versus Audinate’s more industrial, less headline-friendly user base.

3. Fineos Corporation (ASX:FCL) vs any high-growth insurtech

Fineos is an Ireland-born company that sells core insurance processing software to large global insurers: clients that take years to sign and then almost never leave. Revenue is sticky and recurring. But the sales cycle is brutally slow, growth is modest, and the company has operated at a loss while building out.

Newer, lossmaking insurtechs with faster-growing (if smaller and less durable) revenue have at times commanded higher market caps by simply having a more exciting distribution story even if the fundamentals could be considered ‘weak’ by typical blue-chip standards. Fineos looks like a value trap until the market eventually recognises the contract backlog; it has spent years waiting for that re-rating. You could also argue investors are worried about the impact of AI.

Conclusion: Stocks with better fundamentals trail their peers

It may seem unfair that stocks with worse fundamentals do better than companies with better fundamentals. But there’s something to be said about delivering binary outcome after binary outcome as promised to investors. But when the company becomes a company where the only exciting thing is reporting season, it is harder to excite investors unless you spectacularly deliver.