Pro Medicus (ASX: PME) founders Anthony Hall and Sam Hupert sold a combined 2 million shares ($176 million) on-market on Tuesday. The company's shares remain unphased despite the size of the sale, up 0.5% to $88.50 around midday.
When an insider sells a large block of shares, it can raise concerns among investors and lead to a sharp decline in share price. Investors may begin to wonder if insiders know something that they don't or if they are cashing out before some bad news is announced.
But this was not the case for Pro Medicus.
"The sale was in response to a strong approach from an individual fund and was done before market at the previous day’s closing price," the company said in a statement.
The sale of 2 million shares was conducted at a zero percent discount. This is a big deal because:
Pro Medicus is a relatively illiquid stock (i.e. it's difficult to sell a large amount of shares without moving the share price)
Large trades are often negotiated between institutional investors, who have more bargaining power than individual investors. As a result, they are often able to negotiate a discount from the market price
In this instance, the individual fund was happy to buy ~2 million shares at no discount
Pro Medicus trades at a price-to-earnings of 152 and its shares are up 60% year-to-date. While the company may appear to be overvalued and overbought, this fund doesn't seem to mind. You'd also have to wonder what kind of fund is casually scooping up ~$176 million worth of shares.
Encouragingly, Hall and Hupert both reaffirmed that "they do not intend to sell any further shares in PME in the foreseeable future." The Chairman of the Board, Peter Kempen also noted that the sale of shares by founders is consistent with previous sales and provides prospective shareholders with the opportunity to invest in the company.
Here's a summary of all on-market insider trades from Pro Medicus since 2021.
A Goldman Sachs note from 23 October reiterated a BUY rating for Pro Medicus with a $88.00 target price. Some of the key takeaways from analysts include:
"Across our coverage, we view Pro Medicus as the clearest beneficiary of increased AI adoption in radiology over time, both through commercialisation of its own AI algorithm(s) but also through integration of third party algorithms."
"We believe that Visage is one of only two solutions currently available that can be fully cloud-deployed at this scale, and hence represents a tangible competitive advantage, as highlighted once more today."
"Whilst PME does not appear cheap on near-term multiples: i) the business is highly profitable (>50% net margins); ii) cash flows are recurrent/long-dated in nature (avg. 5-10 year contracts); and iii) the balance sheet is robust."
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