Some ASX shares are so good that I’d want them in my portfolio. If I could buy them at a good price…
That’s the tricky part, we are currently seeing strong conditions for most asset classes. How long will interest rates stay this low? It makes me cautious about investing in things that look very expensive.
However, if the opportunity arose, I’d love to buy and own these two ASX shares:
Pro Medicus Ltd (ASX: PME)
Pro Medicus is a business that describes itself as a leading medical imaging IT provider, with radiology IT software and services to hospitals, imaging centres and healthcare groups.
Valuation is the key reason why I couldn’t bring myself to invest in it right now. According to Commsec it is valued at 136 times the estimated earnings for the 2022 financial year. And that allows for a lot of the new contracts that it has won to start adding to earnings.
Those contracts are one of the key reasons to like Pro Medicus . The ASX share has essentially won all of the major contracts available from large healthcare organisations over the last year. Not only is this great for revenue, but it’s a good sign of a strong competitive position – it’s being recognised by those large clients.
Not only is it winning good revenue, but it comes at a very high EBIT margin (EBIT explained). Pro Medicus has an EBIT margin of more than 50%. That means more than half of new revenue turns into EBIT. Considering it’s growing the dividend as well, that means plenty of new revenue turns straight into dividends for shareholders.
The business is building an attractive ecosystem for clients to use – that’s very useful for ensuring clients stick around for the long-term.
But it’s too expensive for me.
REA Group Limited (ASX: REA)
REA Group is a leading property portal business. It has various digital assets, including the all-important realestate.com.au.
It only has Domain Holdings Australia Ltd (ASX: DHG) for competition in Australia and it’s materially ahead of Domain.
What I really like about this ASX share is that it essentially gets a small cut of money for almost every property sale in Australia. As house prices go up, it can charge a bit more, particularly as it adds more features for property sellers.
There are other reasons to like REA Group. I like that it’s diversifying and adding to its earnings with extra property services, like mortgage broking.
But I particularly like the international investments it has in other countries like the US and India with property portals there. Those regions have huge populations and could significantly add to earnings in the future.
But valuation here too is a problem for me, compared to REA Group’s profit growth rate. Using the latest REA Group share price and estimates on Commsec, it’s valued at 52 times the estimated earnings for the 2022 financial year. And there’s the shorter-term problem of lockdowns which are impacting listings.
In my mind, there are other ASX shares I’d rather look at that are better value.
