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Pro Medicus (ASX:PME) share price drops despite strong FY22 growth

The Pro Medicus Ltd (ASX: PME) share price is down after the company reported strong growth in FY22.

Pro Medicus describes itself as a healthcare informatics company that offers a full range of medical imaging software and services to hospitals, imaging centres and healthcare groups.

Pro Medicus FY22 result

Here are some of the highlights from the ASX healthcare share’s report:

  • Revenue up 37.7% to $93.5 million
  • Underlying profit before tax grew by 46.8% to $62.4 million
  • Net profit after tax (NPAT) rose 44.1% to $44.4 million
  • Still debt free
  • Final dividend of 12 cents per share
  • Full year dividend of 22 cents per share, up 47%

What drove the growth?

Pro Medicus has continued winning contracts which helps revenue and locks in growth for a number of years.

It won a $40 million, 7-year contract with Novant Health, a $32 million, 8-year contract with Inova Health System and a $28 million, 7-year contract with Allina Health. It also pointed to a contract extension as well as renewals. More contracts mean growth in the current year and the next financial year as it benefits from a full 12 months of revenue.

The high EBIT (EBIT explained) margin increased from 63% to 67%. It has been growing its investment in research and development and stuff numbers, but the growth of revenue has more than compensated for this. This high profit margin means that a lot of profit can be translated straight into net profit.

Pro Medicus also said that inflation and wage costs have had very little impact on its business. Being a software as a service business means it doesn’t have supply chain or product price inflation pressures. It has a “small, highly effective team” which also limits the impact of wage inflation. The company also noted that healthcare is largely non-discretionary and clients are well funded, so they are mostly insulated from the current economic problems.

Outlook for the Pro Medicus share price

Management said that the pipeline remains “strong”, with a “good spread of opportunities in different market segments”. It’s seeing interest from tier-1 academic medical centres, large and mid-sized integrated delivery networks (IDNs) as well as renewed interest from the for-profit sector.

A number of potential clients are reportedly considering multiple Visage products. It’s also benefiting from clients wanting to move to the cloud.

Pro Medicus is one of the very best ASX shares, in my opinion. But its price/earnings ratio (p/e ratio) certainly reflects that, which is well north of 100.

I certainly would like to have Pro Medicus in my portfolio, but I’m not sure when the right time to buy would be – five years ago would have been good! Despite rising interest rates, it still has a hefty valuation. For now, there may be other ASX growth shares that could make better picks.

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