Is Pro Medicus a bargain at $200?
Pro Medicus is down 30% from recent highs and undercut its 200-day moving average for the first time since July 2022.
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Mentioned
KEY POINTS
- Pro Medicus has plummeted 30% from its recent all-time highs, as risk-off sentiment in the markets hammers growth stocks
- The stock’s PE ratio fell from 300 to 220, still above its historical average (124 since 2015), reflecting its premium valuation but also sensitivity to market downturns
- Breaching the 200-day moving average signals downside technical risk, but fundamentally, analysts forecast strong EPS growth (53%, 58%, 14% for 2025-2027)
Pro Medicus (ASX: PME) is often highlighted as both the market's best and yet most expensive growth story.
The recent risk-off move hit growth stocks hard, pulling Pro Medicus down 30% from its record $297.14 close on February 19. The stock has dipped 16% year-to-date, though it’s still up an impressive 102% over the past twelve months (albeit a step down from the 185% gain for the year-to-February).
Despite the drop, the company’s fundamentals remain intact, with no major trading or analyst updates since February. So, is this dip an opportunity for investors?
High price-to-earnings
A market-wide selloff doesn’t alter the company’s fundamentals. The company continues to fire on all cylinders — boasting near-perfect client retention and only beginning to tap into a vast global market. To frame its momentum, here’s what CEO Dr Sam Hupert shared during the FY24 and half-year FY25 earnings calls:
"We maintain our record of 100% renewals to date, all at a higher price point than the original contracts and many for longer terms."
“The last two months sort of eclipsed everything because we had unprecedented conversions.”
"We are looking at some new geographic markets. But I think our main focus is currently the US simply because we have so much runway there, and we are making very significant inroads."
Since 2015, Pro Medicus has delivered a compound annual growth rate (CAGR) of 43.5% in net profit. Its latest half-year FY25 result showed a 42.7% jump in net profit.
Volatile valuations
The company’s growth remains strong, but its valuation is highly sensitive to market conditions.
In a neutral or bullish market, the stock price can climb steadily, even without earnings updates or fundamental catalysts to propel it. But in a bearish climate, that same lofty valuation turns into a liability, inviting sharp downward pressure.
Pro Medicus has spent much of this year trading at a price-to-earnings (PE) ratio above 300—its highest ever. The recent 30% selloff has pulled that down to around 220, but a glance at historical PE levels (sourced from TradingView, based on daily ratios) puts it in perspective:
Last year’s average: 196
Since 2023: 176
Since 2020: 159
Since 2015: 124
Since 2005: 83
The trend is clear. Pro Medicus has grown more expensive over time. Several factors fuel this climb:
The median PE ratio for non-resource ASX 200 stocks hit 20 around February (versus a long-run average of 16, per UBS).
Investors have piled into Pro Medicus, inflating its share price.
The ASX’s scarcity of high-quality growth stocks funnels capital into a few standout names, pushing valuations skyward.
The company’s consistent earnings growth and expansive opportunities keep the hype alive.
Still, the current price-to-earnings ratio of 220 far exceeds historical averages, and in today’s environment — marked by tariff uncertainties, broader market softness, and slowing economic growth — the path of least resistance could well be downward.
Talking technicals
On Thursday, Pro Medicus undercut its 200-day moving average, a level it hasn't breached since July 19, 2022. This rare dip underscores the strength of its long-running trend.
Pro Medicus price chart (Source: TradingView)
Since 2012, the stock has only undercut the 200-day on two occasions (outside of instances in 2020). It also briefly tagged the 200-day on three occasions in 2018 but bounced off very quickly.
On both occasions, the stock started to trade with greater volatility and no trend.
As legendary investor Paul Tudor Jones is quoted, "Nothing good happens below the 200-day moving average."
Pro Medicus undercuts the 200-day moving average during the global rate hike cycle in 2022-23 (Source: TradingView)
Pro Medicus undercuts the 200-day moving average in late 2016 amid a rotation out of growth stocks (Source: TradingView)
The bottom line
The momentum for Pro Medicus has taken a sharp downturn, with the path of least resistance likely tilting to the downside. The stock has dipped into oversold territory, suggesting it’s ripe for a potential bounce. Yet, without a positive company announcement or a lift in broader market conditions, it could continue to falter — much like its choppy price action during the global rate hike cycle of 2022-23 and the growth pivot in late 2016.
Even amid this de-rating, analysts like Macquarie remain optimistic about the company’s earnings trajectory. In their latest forecasts (February 14, 2025) they project EPS growth of 53%, 58%, and 14% for 2025, 2026, and 2027, respectively.
