A number of financial news wires including the Sharecafe are reporting that the analysts at Brisbane-based broker Morgans have run the ruler over medical imaging business Pro Medicus Limited (ASX: PME) and slapped a $23.69 12-month share price target on it.
Pro Medicus shares closed at $20.47 yesterday and have been on a hot run over the last couple of weeks perhaps as Morgans pushed some of its clients into the business ahead of publicising its research report. This is perfectly legitimate as no one is obliged to act on Morgans' or any other sell side broker's research and it can give their clients' returns a leg up.
Anecdotally and from memory another stock I believe Morgans has pushed some of its (very) high net worth clients into is also a medical imaging business in Volpara Health Care Technologies Ltd (ASX: VHT).
It is in the breast screening space whereas, Pro Medicus provides more general medical imaging services to largely U.S. hospitals and health care providers.
Both are founder-led software-as-a-service (SaaS) businesses operating in the lucrative healthcare space, with one difference being Volpara is still in start-up mode with a valuation around $315 million, compared to more than $2 billion for Pro Medicus.
While I can't claim credit for bringing Pro Medicus to the attention of readers that often when it was a $300 million minnow only a few years ago, I have consistently written up on it over the last 18 months or so as I turned increasingly bullish.
On the other hand Volpara was a business I first flagged to readers as a spec buy at the IPO stage in April 2016, after which it regularly traded around 30 cents. This after it was brought to my attention by the sell side desk at Macquarie Group Ltd (ASX: MQG).
Pro Medicus is now up more than 2,000% over the past 5 years, with Volpara also more than tripling since its IPO.
However, both these stocks now look scarily expensive on conventional valuation metrics.
Even on enterprise-facing SaaS metrics (some of which have arguably just been made up by companies / shareholders to justify valuations) they look frothy to me.
Still investors have bid Pro Medicus shares are up another 4% to $21.30 this morning on the back of the broker upgrade and I wouldn't chase the spike up here on the back of a a sell-side broker upgrade.
It is certainly a business to own and it has been a catastrophic mistake to dismiss it as 'too expensive' for the last of 5 years, but I expect patient investors will find cheaper prices before the end of 2019.
