Pinned straw:
Yet another spectacular set of numbers from one of the best businesses on the ASX.
I know you shouldn't be fussy with price when it comes to great companies, but Pro Medicus is on a PE of 127..
That could represent value, but you'd need to see at least something like 25% average annual compound growth in NPAT for 10 years, and for shares to then trade at a PE of 35 in 2033. If that happened, you get a 10% average annual capital gain.
Over the last 5 years, the CAGR in EPS has been about 35%. So if you extrapolate that forward and apply a terminal PE of 35 (about what CSL trades on), then your average annual capital gain is something like 18%pa over 10 years. On these assumptions, the company would have a NPAT of $1.2b in 10 years -- and that's perhaps not too much of a stretch, especially with expansion into other areas.
So I'm not saying shares are definitely too expensive, just that a lot of optimism is built in..
(An I'm just bitter having sold down so much over the years. Idiot!)
@Strawman great summary - this is one of the most painful companies to sit on the sidelines and watch. I'd love to own $PME, but I can't see the return.
But one day, they'll have a slower half and the analyst scribblers will downgrade and the chartists will "sell". That will be the day. (I just regret I wasn't clear-sighted enough in 2020.)
The other thing I am mindful of is that today global medical imaging software market is about $3.5bn, so they have ample room with only about 3% market share. But as they get bigger the competitive pressure starts increasing, Today they are 3% market share. In ten years it looks more like 15-20% market share (of course they might expand their offering, and who known what the market actually is in 10 years). So, in broad brush terms, the level of growth in the valuation is doable if they retain their position as a product leader. It is entirely possible that they could still be growing strongly and justify a p/e of 35 in 10 years time.
So, all I am left with is to be patient.
Disc: Not held (sob)
I don’t think the current share price for PME is too extreme based on its proven growth runway.
Take its 3 year revenue CAGR of 31% and look forward 10 years and say 15% revenue growth at 2033. At 2033 with 15% rev growth, say PE 40, Discount rate at 10%.
On this basis fair value is about $67.
The chart below illustrates the revenue growth.
