Pro Medicus reports record first-half but shares tumble on lofty valuation

The price action for Pro Medicus (ASX: PME) highlights a battle of two narratives – a strong first-half FY25 result vs. lofty market expectations and a rich valuation.

Pro Medicus shares have rallied around 175% in the past twelve months, a move backed by a massive growth runway, a string of contract wins and some of the best operating leverage on the market.

However, February reporting season has flagged an interesting trend, where some of the market's strongest growth stories have struggled to push higher, even after beating earnings expectations.

Today's performance from Pro Medicus serves as a reminder that the market is becoming increasingly mindful of valuations.

Pro Medicus 1H25 Highlights

Pro Medicus reported another strong period of growth and further flexed its operating margin. Most of the numbers were a slight beat or miss against consensus expectations.

• Revenue up 31% to $97.2 million vs $99.7 million consensus (2% miss)

• EBITDA up 40% to $72.8 million vs. $76.2 million consensus (4% miss)

• EBITDA margin up 500 bps to 75% vs 76% consensus (1% miss)

• Net profit up 45% to $51.7 million vs. $50.5 million consensus (2% beat)

• Interim dividend up 47% to 25 cents vs. 24.3 cents consensus (3% beat)

RBC analyst Garry Sherriff said the numbers fell short of expectations, driven by "the difficulty the market has estimating the phasing of contract contributions, particularly after 10+ contract wins over the last 12 months."

Despite the solid numbers, Sheriff expects Pro Medicus shares to come under pressure today given "lofty multiples and a history of beating market expectations."

Volatile Price Action

Pro Medicus shares opened 1.0% higher and rallied 3.7% within the first 15 minutes of trade. This marked a brief record high of $298.98.

But from that high – the stock started to unravel in a vertical fashion, down as much as 5.2% by 10:42 am AEDT.

Pro Medicus intraday price chart Thursday, 13 February 2025 (Source: TradingView)

Outlook Remains Healthy

Despite the volatile price action, Pro Medicus delivered another solid set of numbers and chief executive Dr Sam Hupert continues to see ample growth opportunities ahead.

Some of the key highlights from the his results interview include:

• 1H25 performance: "It was our biggest half in terms of upticks in revenue, net profit growth and retained earnings. It was also by far our biggest half in terms of new contract wins, contract renewals and upgrades, all of which we think set us up for the second half."

• US market opportunity: "Roughly 60 cents of every dollar spent on healthcare globally is spend in the USA. It is a huge market so there is plenty of runway despite a slew of recent wins."

• Market share opportunity: "We believe we are unique in that we can address close to 100% of the market with the one product offering."

• Margin expansion: "... revenue growth has once again outstripped growth in expenses, hence the increase."

• Cash reserves: "Primarily we look at our cash in terms of what we need to invest in our businesses ... secondly we look at returns to shareholders ... we also like to keep some dry powder in terms of co-investments and/or future M&A."

The Bottom Line

Its hard to deny Pro Medicus' status as one of the market's best growth stories, and that's been backed by its consistent earnings growth and a near-vertical price chart.

But at a PE ratio of 360 – perhaps this is a necessary pullback to provide a small reset in valuations.

Interestingly, Pro Medicus saw a sharp 13% selloff after its first-half FY24 results (15-Feb-24), followed by another 7% decline the next session—though that drop was driven by a slight earnings miss.

It took around two months for the stock to recover, and three months later, it was trading 7.7% above pre-result levels. By year-end, it had more than doubled.