Pro Medicus Ltd (ASX: PME) is a top class ASX share. The business has a few different factors that make it quality option. Those reasons might partly explain why investors are willing to pay a high earnings multiple for the Pro Medicus share price.
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What does Pro Medicus do?
For readers that haven't heard of Pro Medicus before, it's a business that describes itself as a leading healthcare informatics company. It provides a full range of medical imaging software and services to hospitals, imaging centres and health care groups worldwide.
A key selling point of its software is that it's easily deployable in both public and private cloud environments. It has offices in Melbourne, Berlin and San Diego.
Why Pro Medicus is a top class ASX share
There are a few different factors that support the quality label.
Very profitable
Pro Medicus is proving to be very profitable when it comes to its profit margins.
In its FY21 half-year result it showed that its earnings before interest and tax (EBIT) margin improved materially from 51% to 59%. The company said this resulted from increased revenue combined with significantly decreased operational expenditure.
The 59% number may not be sustainable as Pro Medicus starts paying for travel and conferences again. But, the company thinks that the capacity to do things remotely, both in terms of sales and implementations, will mean there can be a "new normal" where it can do more things off-site than the past without reducing its effectiveness. Pro Medicus believes this will result in savings going forwards.
Pro Medicus believes there is scope for margins to improve on what they have been historically. That means a significant portion of new revenue, more than half, can turn into EBIT.
Leading in multiple growth regions
The ASX share has been winning large, multi-year agreements in both North America and Europe. Pro Medicus has essentially won all of these important contracts that have come up for grabs, which may suggest that the company is building a reputation as a very strong player in its sector.
The US is a huge market for healthcare operators because of both the population size and the amount of spending there.
Pro Medicus' latest contract win was an eight-year deal with The University of Vermont Health Network worth $14 million. Visage will replace multiple legacy PACS (picture archiving and communication system).
The company said that the deal extended its US academic institution footprint.
Exciting potential products
It continues to think about the future. New and improved products could help grow its offering, market position and profit.
Last month, the ASX business announced it had signed a multi-year research collaboration agreement with Mayo Clinic.
The agreement will serve as the framework for collaboration between the two parties to facilitate the development and commercialisation in the field of AI leveraging the Visage 'AI Accelerator' platform. Mayo Clinic has a depth of clinical knowledge and extensive research expertise, according to Pro Medicus.
The company says that it sees AI playing a significant role in healthcare, particularly in its field of imaging IT.
Pro Medicus share price valuation
It's valued at 116x FY23's estimated earnings according to Commsec.
