Is this ASX 200 company the next CSL?

With its unique competitive advantage, Pro Medicus Limited (ASX:PME) could be the next big thing in Australian healthcare. Should you be buying PME shares?

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The Pro Medicus Limited (ASX:PME) share price is trading at all-time highs, following strong results and favourable institutional sentiment. A unique competitive advantage and continued product innovation could potentially make Pro Medicus the next big thing in Australian health services.

What does Pro Medicus do?

Pro Medicus is a medical imaging software company based in Melbourne, servicing clinics and hospitals in Australia, the United States (US) and Europe. Currently, Pro Medicus has an estimated 4% share of the radiology imaging market in the US, holding transaction model contracts with renowned institutions including Partners Healthcare and the Mayo Clinic.

Pro Medicus offers a suite of products, however the company's flagship service is its 'Visage' imaging software. As imaging access and quality becomes more important in the medical profession, Visage allows radiologists to view reports and large image files generated by X-rays on their mobile devices, enabling clinicians the freedom to make diagnostic decisions remotely.

Competitors in the medical imaging sector include heavyweights such as General Electric Company (NYSE:GE), Siemens AG and Philips. However, Pro Medicus has a competitive advantage over other companies in how it approaches data management. Medical images and files are high resolution, dense and as a result have a massive file size, making them hard to transfer and manipulate. The software implemented by Pro Medicus allows for easy transfer over mobile devices by streaming direct, rather than compressing and sending files.

Strong growth and innovation

Earlier this year, Pro Medicus reported another set of exceptionally strong results. Revenue for 6 months was 59.5% higher than the year prior at $25.3 million, with revenue rising in all key jurisdictions. As a result, underlying net profit jumped 79.9% to $9.2 million. Operating margins also improved to 51.8% in comparison to 48.5% the year prior due to relatively fixed costs, with margins expected to improve as the business scales.

The value of Pro Medicus' product was demonstrated in its continued uptick in transaction revenues, especially in the US after implementing software in Yale New Haven Hospital and the Mayo Clinics. Australian implementations are also progressing well and European expansion continues with the extension of a contract with the German Government Hospital network.

Pro Medicus also announced that fully franked interim dividend was lifted 40% and declared a special 2.5c dividend. Most attractive of all is that Pro Medicus has zero debt and massive amounts of free cash flow, currently holding $24.7 million in cash. This allows for future development and expansion of its products. Recently, Pro Medicus announced its intentions to expand into other medical imaging fields, including cardiology and ophthalmology.

Share price target

Recently, analysts at Morgans initiated coverage on Pro Medicus, slapping a $23.69 share price target on the company. Although share price targets don't dictate the future of the company's performance, it does show where institutional sentiment lies and their reasoning. Analysts cited 'robust' growth potential to support their valuation and assume a 65% increase in sales and 110% jump in profit over the next two years.

Are Pro Medicus shares a buy?

Personally, I owned shares in Pro Medicus from around $9 and sold at roughly $12, foolishly thinking that the share price had lost its steam. The Pro Medicus competitive advantage, its strong balance sheet, product pipeline and innovation and strong leadership could see the company continue to grow in the future and potentially become the next big thing in Australian health services.

Given the company's surging share price, it is difficult to recommend a buy at current levels. Perhaps the more prudent strategy would be to wait for a substantial pullback before buying shares in Pro Medicus.

Nikhil Gangaram 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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