Pro Medicus (ASX: PME) is an Australian company that develops medical imaging software under its Visage product range. Leading medical institutions including NYU Langone, UCSF, and Mass General Brigham have publicly or semi-publicly praised the platform—often via PME-issued press releases or interviews. In 2020, the Mayo Clinic selected Visage, citing its unique performance and capabilities.
The company enjoys very high margins, underpinned by long-term contracts with hospitals and clinics, often using a pay-per-scan model. It has been expanding aggressively, particularly in the United States, where it has gained significant traction among tier-one healthcare providers.
Pro Medicus also boasts an exceptional balance sheet, with very high cash reserves and negligible debt. Its directors retain a substantial ownership stake, signalling strong confidence in the business. The company’s growth has been consistently impressive, with Return on Assets (ROA) at 40% and Return on Equity (ROE) at 42%. The current ratio stands at 5.97, reflecting strong liquidity.
However, the valuation is extremely stretched. The P/E ratio sits at 324x, meaning it would take 324 years of current earnings per share to cover the share price. The dividend yield is just 0.3%, the price-to-book ratio is an eye-watering 154x, and the acquirer’s multiple also of concern.
While Pro Medicus is a high-quality and well-managed business, it does not operate in a monopoly. Major global players like GE Healthcare, Philips, and Siemens offer competing products and are actively developing platforms to emulate Visage’s capabilities. These companies also benefit from broader product portfolios, which help fund their R&D at scale.
PME also faces some concentration risk, with revenue heavily reliant on a relatively small number of customers. Its lack of diversification beyond medical imaging means it is particularly exposed to regulatory and technological shifts, as well as changes in healthcare and insurance policy—especially with recent developments in the U.S. market.
In summary, Pro Medicus is an Australian success story, decisively competing with—and in many cases outpacing—some of the biggest names in global healthcare tech. For this Australian investor, this is a point of pride. However, the risks remain real: strong competitors, limited product scope, and a valuation that appears difficult to justify. While a dramatic price correction may not be imminent, caution is warranted, particularly for the average investor considering adding to a position at current levels. Buffett and Munger are famous for saying to focus on buying great companies at fair prices. PME is definitely a great company, but this current valuation is not fair.
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