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…

| More on:
Five stacked building blocks with green arrows, indicating rising inflation or share prices

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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."

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.

More on Growth Shares

happy investor, share price rise, increase, up
Growth Shares

Where to invest $5,000 into ASX growth shares now

These shares could be destined for big things according to analysts.

Read more »

ETF spelt out with a piggybank.
ETFs

Want to buy ASX growth shares? Consider these ETFs instead

Growth ETFs can be easier to invest in than shares.

Read more »

A businessman compares the growth trajectory of property versus shares.
Growth Shares

Are these 2 top ASX growth shares buys?

ASX growth shares can deliver strong results. Should these stocks be in your portfolio?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Growth Shares

These ASX growth stocks could rise 80% to 100%

Let's see what brokers are tipping as buys with big return potential.

Read more »

Man holding a tray of burritos, symbolising the Guzman share price.
Share Market News

Wingstop mania hits Sydney — is Guzman y Gomez next in line to soar?

Can Guzman y Gomez be Australia’s next fast food success story on the ASX?

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Growth Shares

3 ASX shares for beginners to buy with $500

These shares are highly rated by analysts. Let's see why they could be top picks for beginners.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Growth Shares

Invest $5,000 into these excellent ASX growth shares

These shares could be top picks for growth investors. Let's find out why.

Read more »

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
Growth Shares

3 ASX 200 shares that are up more than 30% in a month. Can they go higher?

Are there more gains ahead for these shares? Let's find out.

Read more »