4 reasons why Pro Medicus (ASX:PME) just keeps rising to new heights

Another reporting season, another impressive result from Pro Medicus (ASX:PME). Eerily similar to the debate going on about CBA (ASX:CBA), investors debate about whether or not it is overvalued or  undervalued, but the share price just keeps going up. We are not going to state our view on where it is headed next, although we speculate any downwards movement will only happen when the fundamental reasons why it has been such a good business change – if at all.

But first, a recap on who Pro Medicus is. It is the company behind the Visage software. Pro Medicus’ products use networks of customers’ facilities or cloud services to quickly transfer imaging data to a specific office or computer, to subsequently view and analyse the images. PME’s Visage software can integrate into any brand or type of imaging hardware.

So what? Well, the advances in medical imaging technology have led to a massive data explosion as more precise images take up a significant amount of computer storage. For example, an optoacoustic breast ultrasound can take up more than 10 GB of computer storage. This means downloading images, and in turn viewing them, can take a while and waiting reduces radiologists’ productivity. And in a post-COVID world, with even doctors now working from home, you don’t want you images just sitting on one computer in an office somewhere. 

It is easy to forget that Pro Medicus has been listed since 2000 and in business since 1980, only coming across Visage in 2009. But since that acquisition, the rest is history. Did we mention that the company has been founder-led and has not raised a cent of capital since it was first listed? We would suggest the share price would nowhere near what it is today if it had to undertake capital raisings as often as other companies do.

4 reasons why Pro Medicus (ASX:PME) just keeps going up and up

1. Its solid business model

Pro Medicus generated $213m in revenue and an $115m profit, representing a >50% margin and growth of 40% from the year before. The company’s software requires minimum capex to be installed or training for clients to use. The company charges through SaaS fees, meaning the cost for additional customers is zero, as well as for the viewing of individual images.

2. Successful entry into the US market

The US is the world’s largest healthcare market, difficult to penetrate, but lucrative if you can. Pro Medicus has done so and has not stopped winning contracts with large healthcare providers in the US that tend to be 5-10 years, as well as smaller operations. In FY25, it won 7 new contracts totalling A$520m and this did not include renewals and upgraded contracts.

The biggest was a 10-year US$330m contract with Trinity Health, one of the top 10 IDNs (Integrated Delivery Networks) in America, and the company claimed this was one of the largest deals in radiology IT.

3. Long term leadership

The company continues to be led by its co-founders Sam Huppbert and Anthony Hall, and the pair continue to own a significant stake in the company. Companies with long-term leadership are seen as more stable investments, particularly those that are founder-led.

4. Prospect of future growth

Pro Medicus’ current client list may be good enough, with several hundred million over the next few years. Still, the company claims it has penetrated >10% of the market and that it is growing by 3.5% per year. There are 670 million medical exams, a figure growing by 2-3% per year. Moreover, the company claims that it could benefit from adopting AI in its software, and expending it to other health services using medical imaging, such as cardiology.

Where to next?

Where Pro Medicus heads next all depends on whether or not those 4 reasons it has gained continue to hold up. If it continues to win major hospital contracts in the US and maintains it margins, this company can maintain its position as one of the most prominent healthcare stocks on the ASX.

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