Pro Medicus (ASX:PME) Valuation in Focus After Strong Earnings and Bigger Dividend for FY25

Pro Medicus (ASX:PME) just gave investors plenty to think about after releasing its annual earnings and following it up with a bigger dividend. The company posted strong numbers for the financial year, notching higher sales and a significant jump in net income compared to last year. To cap it off, management lifted the fully franked final dividend from 22 cents to 30 cents per share. This move signals real confidence in both the business and the company’s ability to keep delivering for shareholders.

This combination of higher earnings and a generous dividend has shifted attention back to Pro Medicus’s longer-term growth story. Over the past year, the stock has soared around 105%, with gains picking up momentum again after a dip last month. Even when looking at returns over three and five years, results are well above average, indicating that the market continues to support both the company’s execution and its growth potential. With annual revenue and profits growing at a healthy pace, and fresh cash being returned to investors, the storyline here remains active.

But with the share price rising so far and so fast, the question now is whether there is still value left on the table or if the market has already priced in the next stage of Pro Medicus’s growth.

Price-to-Book of 123.4x: Is it justified?

Valuation analysis using the price-to-book multiple indicates that Pro Medicus is highly overvalued compared to both its direct peers and the wider healthcare industry.

The price-to-book multiple shows the market's value of a company relative to its net assets. In healthcare, it can indicate whether a company is being priced for factors such as future growth, superior profitability, or other intangible strengths. With Pro Medicus’s price-to-book ratio at 123.4 times, investors appear to be factoring in extremely strong expectations for future performance, which is considerably higher than the industry average.

The industry’s average price-to-book ratio stands at 2.9 times, while direct peers average 15.7 times. This makes Pro Medicus’s valuation a notable outlier. Such a high multiple reflects optimism about ongoing growth and profitability, but it also raises questions about how much future success is already included in the current price.

Result: Fair Value of $43.22 (OVERVALUED)

See our latest analysis for Pro Medicus.

However, any slowdown in earnings growth or a shift in market sentiment could trigger a sharp reversal in Pro Medicus’s lofty share price.

Find out about the key risks to this Pro Medicus narrative.

Another View: Our DCF Model

Taking a different approach, the SWS DCF model also points to Pro Medicus being overvalued. This reinforces concerns from the first analysis. Are current expectations already too high, or does the market see something that models do not?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Pro Medicus for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Pro Medicus Narrative

If you see things differently or want to dig into the numbers yourself, you can put together your own narrative in just a few minutes, and do it your way.

A great starting point for your Pro Medicus research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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