@Schwerms, still with the fairies (in a nice way!) with this. ~$170.00 is looking to be a good candidate for "the bottom", but the next 2 or so weeks will tell whether the current bounce is a real or a dead cat one ...

Because I never imagined ever holding PME, I have not done any work to get my head around it other than "medical imaging", "low capital", "crazy growth". Coupled with the insanity caused by a certain deranged nuthead, and the volatility that comes with that, am pretty much caught with my pants down on PME at the moment, not knowing enough to feel confident putting any money down.

I am also quite anchored to the miniscule number of shares I can buy with a starter position of say $10k or $15k. For there to be any meaningful dollar gain, it feels like there has to be huge price moves - $50, $100 etc. vs dropping that same $10k to top up CAT or SDR - I can get a hell of a lot more units, and the price needs to only move in $1 increments to make decent gains, which feels much more achievable. I know this is not quite the right way to think about it but this will be my first company above $75, so can't quite get my head around that yet ...

I’m sure you realise this but it’s about percentage gains not SP dollar value gains. It’s another bias we have to overcome

I’ve tried repeatedly to explain this to the love of my life. To no avail, but at least she trusts me with our future investments

Except when it comes to crypto.

Which could be entirely correct.

I still struggle with the earnings multiple and the threat of further multiple compression, was going to watch for another week or two and see if it appears to have found a bottom. Get a better idea after the half year but it might be onwards and upwards by then. Hard to disagree it is one of the better of not best on the asx just the price premium gets me even after it's down 30ish %

Maybe today's the day?

Discl: Not Held, But Looking to Open Position

Had a re-look at the PME Chart after today's carnage-on-PME and also listened to the PME call. Since the last update 2 weeks back (has it only been this long??):

• The price has crashed through $158 to $167
• Then crashed through without even stopping $144.27

Next 3 support levels that I am looking to, to pull the trigger on building a position:

• $120.70, failing which;
• $111.75, failing which;
• $96.14.

Can't fault your conviction @jcmleng

@tomsmithidg , to buy or wait to buy or both?? I am not quite sure what I am believing any more these days ...!

@jcmleng To the company and still wanting to buy mostly (that charting always impresses too) but also to keep articulating support levels and setting your buy prices. Hope you get it somewhere in the $90 support range and then it bounces hard mate.

I like a massive price drop as a buying opportunity as much as the next bloke @jcmleng but I have to be honest, I just don't get the hype. Below is a quick 2025 comparison (but with today's closing prices - at 2025's closing prices it would be insane) between my current hot topic ANZ and PME:

Make it make sense.

I've watched and admired PME from the sidelines for years but what has always kept me from putting any real money into Pro Medicus has been the valuation, which for the past few years has meant, to me at least, that not only was the market prepared to pay up big time for growth, but that they were also prepared to bet that the growth RATE was going to materially increase, or else you wouldn't get the payback within your own lifetime, unless you're just betting on continued momentum and the "Greater Fool Theory".

In other words, the P/E ratio was ONLY going to make sense with (after) either a huge price fall OR a massive earnings lift over many years, and the growth rate required to allow PME to grow into their valuation and have a "normal" P/E ratio without a price fall looked like being wildly optimistic - to me.

What I like about PME:

1. They dominate their space. Not so much in terms of market share globally (they still have plenty of room to grow) but in terms of best offering - they mostly displace legacy radiology systems with superior technology that offers faster processing speeds, better user interfaces, and lower total cost of ownership.
2. They are a very high margin SaaS company, so they scale very well with most of their sales falling straight through to the bottom line because of their costs being largely fixed costs.
3. They are founder led and the founder has very significant skin in the game.
4. Their software and storage solutions are cloud-based and their systems are very sticky; their customers aren't going to go back to an inferior system from a legacy provider or risk changing to a lesser known service provider at a lower price point because the transition risks are significant in an industry where they can't afford mistakes or delays. In other words, Customers will change TO PME as a provider because of PME's superior software, service and reputation, but changing FROM them to someone else is far less likely, even when the change might theoretically involve an ongoing cost saving in future years.
5. The company is well run, management have a great track record, including with capital management, M&A, and adequate/good shareholder communication.
6. PME is a very high quality company, one of if not THE highest quality SaaS company we have on the ASX, especially in the healthcare / diagnostics area.
7. They company will continue to grow as long as they can maintain market dominance in terms of the very best software and service available for their target market(s), and I have no doubt that they can and will continue to grow, at a good rate.

What I don't like about PME:

1. The Share Price.

The Pros list is longer, but the one item in the Cons list is important, because price is actually the most important factor in buying and selling shares in terms of how much profit or loss you make. So PME is certainly a buy, but at what price?

I have read that companies that disappoint the market and get sold down heavily on the day they report are more likely to be trading lower three months later than trading higher. That's just statistics and you can get any statistics you want if you torture the data long enough, however I found that was indeed the case with AD8 when I sold out last year, and I have found it with most of the companies that have market reactions like this (PME down -23.88% today).

PME could be different, but if the AI "scare" continues to affect sentiment towards SaaS companies negatively, I would suggest they can and probably will go lower still.

What kept the PME share price so buoyant for so long - up until they broke back down through $300 in October - was very positive sentiment, FOMO combined with people not wanting to sell, especially when hearing sad stories from those that did sell at lower levels and had to watch the company climb up to $336/share (their year high in July last year), so the higher they went the more demand they created.

That's all unwinding now, and we have what looks to me like a rather minor expectations miss in one or two areas of these results combined with VERY negative sentiment towards SaaS companies due to AI concerns that are sweeping all software companies and companies heavily reliant on software down at a significant rate. It's a significant move to the sidelines by enough market participants that it actually matters.

It's mostly based on fear, not reality, but that doesn't matter; the market can stay irrational longer than many of us can stay solvent - if we bet against the market for long enough.

So, sure, PME is certainly cheaper than they were. A $336 peak in July according to Commsec, down to close at $129/share today, so they're now back to August 2024 levels, so they are cheap relative to where they've come from in the past year, but are they actually now cheap?

I don't know, but I don't think they're going to bounce back over $200 while the market is still negative on SaaS.

I'm interested, but I am not going to even buy a starting position in PME yet; I'm going to wait and see how much they fall, or not. I want to see at least 3 days of gains, preferably more, before considering the possibility that the downtrend that they've been in since July 2025 is over.

Others may choose to go all-in now or average in, but personally I think I have the luxury of time. If they were screaming cheap to me based on their P/E, even their future P/E one to 3 years out based on expected earnings, then that would usually get me interested in having a nibble, but not when they're caught up in the SaaSpocalypse. Just as a rising tide lifts all seaworthy boats (those without gaping holes in their hulls), a receding tide takes everything with it, and there's a receding SaaS tide at the moment and I can't see that one turning on a dime.

@tomsmithidg , one's a bank, the other is a SAAS software?? But its a fair point you make ...

@Bear77, thanks mate, that was the reality check that I needed, together with @Solvetheriddle's $82 target ....

I deliberately stayed away from looking more closely at PME until after close because I did not want to get caught up in the excitement. In digesting the PME call, it is a bloody high quality SAAS company, no doubt.

But that PE, against the ongoing carnage against high PE SAAS companies, globally ... that takes @mikebrisy - like courage, which I clearly lack ...

Hence, my looking at the next 2-3 levels down ....

@jcmleng All I can say is that if we are so lucky as to get your next two or three levels down, then I'll be using my overseas money market funds and fixed income holdings to load up.

Comment on market potential and then a jump to valuation

In terms of sizing the opportunity, I really liked @Solvetheriddle 's market scaling approach, using the $PME 2.5% long term CAGR for US radiology images, then scaling to get all "ologies" and RoW. That's typically how I try and box in my long run, high growth models.

But my approach is different, and so I set out here some of the key features.

More to an "Exam" than an Image

While a headline of 2.5% CAGR growth in "exams" is a good number for the long run, i.e., out 20 years to 2045 to baseline the US, the opportunity for $PME to earn revenue is significantly higher. Let me explain my thoughts.

For example, as scanner technologies evolve and image processing continues to advance, the penetration of 3D and 4D technologies are moving into more and more modalities, and out of the universities and into the mainstream. (Although a non-medic, my PhD involved MRI imaging, and it was quite painful getting 3D and 4D datasets with any resolution back in the early 1990's simply because the storage and processing of files was such a big deal. I couldn't even dream of what you can do today with an MRI scanner.)

One local, contemporary example is $4DX, where instead of the normal workup of a small number of CT images, within the same workflow, they (as I understand) generate a spatially and time-resolved dataset. That a much bigger file and a lot more computing work than presented by a classic CT work-up to a clinician. Of course the magic of the likes of $4DX is how they design the images collected and then the analysis they perform using proprietary and very smart algorithms.... minimising data needed as well as the computing power for maximum informational value. (I'm not very good at this, so when I faced this challenge in the early 1990s I had a smart guy at the Cavendish Laboratory to help me with my work!)

Now while "per image" costs will come down, as they have continued to in a Moore's Law'ish way, the spatial and time-resolved datasets are useless without state-of-the-art processing and visualisation software. So the value of products like Visage (and also $4DX and others) to the clinician increases dramatically, and should be expect to over time, although AI will hit this ... evenutally. (This is the most contestible part of my thesis, and so I will be tracking it over time.)

So, I think there is a clear trend in that the drivers of revenue growth will be:

• Population growth ...de minimis for the US (say CAGR 0.5%)
• Shift in ageing population, driving high imaging load per patient (continues in the US out to 2055-2070)
• Greater mix of 3D and 4D work - more compute / higher value-add of the software over the hardware
• More scope for advanced algorithms incl. AI to increase clinician productivity (we ain't training radiologists and related clinicians fast enough)

So why does Sam keep banging on about the 2-3% CAGR, or 3.5% I've seen elsewhere?

Easy.

Because $PME's ingestion of scans as they grow is growing at 2 to 3 times this volume rate, at the exams level. Whatever the industry is doing, $PME at a multiple of that. Which is the kind of message analysts can verify easily and hook on to. (In a previous life, I got the analysts to believe that my firm's output would grow at a multiple of industry for 5-7 years, and because the message was backed up by short term performance, we got a market premium rating.)

Back to $PME.

RoW means more to PME than it appears today

Adding a modest component for RoW is appropriate. But you need to be careful doing this when projecting out 20 years. The role of middle income and developing economies starts to become material as you go out over time. Both from a population perspective, from a GDP per capita perspective, and from a healthcare per capita perspective. Taking the 2026 global market revenue split will underestimate the opportunity over the long term.

As a thought experiment go back to 2005 and compare the size of the US, China and India economies. Now do it for 2025.

How I think about the Revenue Opportunity

So this brings me to revenue, as the alternative (and I believe more relevant way) to scale the market opportunity.

You can read and make up all sorts of numbers here, but the fact is that in medical imaging software we seeing a significant industry evolution:

Period 1 2015 to 2025: when the medical imaging software revenue CAGR was anywhere from 5.5% to 6.5%, driven by digitalisation and then EHR integration

Period 2: 2025 to 2030: what some commentators are referring to as an "Cloud Migration and AI/Automation" period, with a revenue CAGR of 7.5% to 9%.

Of course, $PME is driving the revolutionin Period 2 and it is leading it.

So, when I think about the global market in which $PME competes for radiology and the other "-ologies" I model $PME's addressible market as follows:

• 2025: A$5.6bn
• 2025-2030: CAGR = 7% (some numbers have this higher, and I have seen up to 9%, but prefer to be conservative)
• 2030-2035: CAGR = 5%
• 2035-2045: CAGR = 3.5% (here, the US will be more mature, but RoW will playing catchup. The CAGR might be higher but I think AI will flatten it.)

$PME's share of the Pie

I feel pretty solid on everything I've written above. Now what scenarios for $PME? Well, there's just no way of knowing.

But it is pretty evident that they are growing revenue at between 20-30% pa at the moment, so tick,... that's 3 times the growth of the TAM.

And it will mature.

So in my modelling of $PME's growth, I break their growth into 3 phases: P1: 2025-2028; P2 2029-2035; and P3 2035-2045,

And so my next assumption is simply that as the market leader, they continue to grow into this market at a mutiple of the industry as P1/P2/P3 rates in 3 scenarios as follows (still playing with these as I continue my research):

Low Case: 24% / 18% / 9% (Global Market Share 2035 = 13% 2045 = 22%)

Mid Case: 26% / 20% / 12% (Global Market Share 2035 = 16% 2045 = 35%)

High Case: 28% / 22% / 14% (Global Market Share 2035 = 19% 2045 = 49%)

Conclusion

I'm not saying my market model is any better. And I'm certainly not saying that it is right. For example, it does not take into account that in a mature AI world the "revenue per exam" will collapse. That is a key risk. However, I think we will see it coming. And we are not seeing it yet. And don't forget AI and ML has been applied to medical imaging already for decades.

I feel as comfortable with these assumptions as I can, because we have evidence that $PME is leading the industry at a time when in the US there is a major re-tooling of medical imaging, and its looking like the US is leading much of the developed world by about 5 years in this effort.

Big players are signing 5 and 10 year deals. Renewals are coming in at contract values often 2X their original values. Big customers are announcing contracts to other players, and then not implementing them (Witness the big VA deal with $M7T which I think is part of the bigger DoD deal that Sam thinks might come $PME's way).

Valuation

So what do I think $PMS is actually worth? Well, unsurprisingly every time I sit down and run my DCF over different assumptions and scenarios, I get different answers.

My lastest efforts generate:

• Low cases around $110-$130
• Mid range cases around $170 - $190
• High cases in the ballpark of $200 - $240

And if I throw a modest amount of debt into the mix (say 0.5 x EBITDA) the FCF uplift is significant all round ... so I wont ... but eventually they will.

I'm not really bothering with P/Es, because it is hard to benchmark a reasonable level with such a long runway, and with margins that progressively expand. P/Es don't really work in that case. (You can prove this for yourself by running a few generic models where you assume EPS CAGR = FCF CAGR.) Just try and work out $PME "Rule of 40" score, and you'll see what I mean.

So, I really don't care what the market thinks. I bought a fair chunk more today around $135, and if we hit @jcmleng's levels,... I'll be buying a hell of a lot more!

Sleep well everyone.

What a great discussion @Solvetheriddle and @mikebrisy !!

It was a sobering read looking at @Solvetheriddle valuation work up and so I went to check the data on advanced imaging growth in the US. It was not so different as indicated by PME. Bit that didn’t feel right to me. At the coalface we are ordering an ever increasing quantity of CT and MRI scans that feels much higher than the ~3% figure. I felt uncomfortable as both professionally and in investing it’s got to be best to go off cold hard numbers. I have only taken a tiny position on PME, and will have some thinking to do to settle on where I think the truth lies, before deciding to “fill my boots”.

best of luck to all

it looks like another interesting day ahead!

c

@Chagsy yeah, I'm still waiting for pushback and would really like to understand where people are taking the opposite view here. The trouble with PME was that the SP was going up with every new ct announcement, when those CTs were already priced in and much more. if AI fear is all it is, and PME successfully navigates it around $130, is ok as an entry position. A while ago i gave a preso, and one guy asked if i would ever buy PME, i said theoretically yes, the numbers are really good, but probably not. (it was high $200 at the time), i said my buy level was aournd $150, but if PME got there, chances were there would be a lot of other stocks offering much greater value.......and that's where we are now, imo

Noticed that PME closed for the second straight day right at its lows. For those that follow TA it shows that sellers are still controlling the stock.

Closing at the low (or near the bottom of its daily range) usually means sentiment is weak and is a bearish technical signal and a potential continuation of the downtrend.

I did say that I usually wait until the 3rd day after an earnings miss to buy but l didn't folow my advice today and lacked the patience (even though the parcel I purchased was not significant).

Having said that I didn't know the stock was going to close at its low and the silver lining for me is that if the weakness continues for a third day on Monday then I will be buying and looking for early weakness and then hopefully an intraday reversal with the stock closing closer to the top of its range.

Discl: Still Not Held ...

@OxyBBear, I did follow/am still following your wait period ...! It went past the $120.70 level I flagged yesterday without stopping to say Hi. A bit of congestion between $111.75 to $120.70 from May-June 2024, so Mon Tues will be quite interesting to see what happens.

My only other thought as I typed the last sentence was that the Lord did say "On the 3rd day, He rose again ...."

All shall be revealed in the fullness of time ...

Confucius say "those who pick bottoms get smelly fingers" :D

Disc. : I may have picked a bottom or two in my time...