The Pro Medicus Limited (ASX: PME) share price has dropped over 9% after its management sold some shares.

Pro Medicus is a Melbourne-based software owner and developer, licensing products to large US hospitals and Australian radiology clinics. The company has offices in Richmond, Victoria, Berlin, Germany and in the United States.

Pro Medicus’ Founder Selldown

Over a year and a half ago the company announced that its Board had encouraged the Pro Medicus founders to consider selling up to 3 million shares each so that liquidity of the company’s shares could be improved.

However, any sales were to be made in the company’s normal trading windows after the announcements of the financial results in February and August, or after the annual general meeting (AGM) in November.

That’s why on 20 March 2018 the company was advised that the founders had sold 1 million shares each.

Today, Pro Medicus announced that the founders have sold a further 1 million shares each during the current trading window.

But the Board was also advised that the founders don’t intend to sell any more shares before the trading period which follows the half year results in Februrary 2020 and even then may not do so at that time.

CEO and Co-Founder Sam Hupert sold his 1 million shares at $36.10 per share, meaning he just cashed in a cool $36 million, although there will probably be some tax to pay on that.

What Does This Mean?

It’s important to keep in mind that the two founders still own around ~50% of the company’s shares — equivalent to over $900 million worth of their wealth, each!

Still, it’s perhaps not surprising that management decided to sell some shares because the Pro Medicus share price was trading at a very high valuation.

Interest rates are indeed lower than they were at the start of the year, but the Pro Medicus share price has gone up 203% in 2019 and it’s at an extremely high price/earnings ratio of 188 times the 2019 earnings.

Pro Medicus is a wonderful business with very high profit margins, but we’ve got to be careful about the price we pay – I’m not a buyer today. I also would want to diversify my wealth if a lot of my money was in just Pro Medicus shares, as the founders have done.

But I’d want to put the money towards other good growth shares, like the ones in the free report below.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.