Pro Medicus: Healthcare IT Developer With Impressive Growth Story – Seeking Alpha

Investor Takeaway

Pro Medicus Limited (OTCPK:PMCUF) is involved in developing radiology information systems along with picture archiving and communication systems around the globe. Growth in earnings and net profit margins have been promising as the company picks up new contracts with hospitals. With no debt on its books, the medical technology company has been in a bullish state after a recent golden cross occurring among moving averages. The enterprise is a superb growth name among equities in the developed markets.

Headquartered in Australia, Pro Medicus provides radiology information systems along with picture archiving and communication systems. The enterprise operates in Australia, North America, and Europe. Key products consist of medical software for practice management, mobile applications for medical imaging results, software with visualization ability to view 2-D, 3-D, and 4-D medical images. The company offers its products to hospitals and other target groups such as diagnostic imaging groups. Clinicians and radiologists utilize their visualization solutions and as a result, make up a large portion of their customer base.

Earnings have grown on average 36.8% per year, over the past 5 years. While in the last reported 12 months earnings growth went up to 39.4%, surpassing the 5-year average. The healthcare services industry only saw an earnings growth rate of 31% over the last 12 months. The same picture can be painted for net profit margins, in the last 12 months margins were at 40.9%, which was higher than the year prior. There is no debt on the companys books, ergo debt and interest coverage are irrelevant. Breaking down sales by region, we can see that 80% of aggregate revenue comes from the North American segment. From the end of June to December 2019, sales were up 43.1% just in the region. In the same 6 month period, the medical technology company boosted revenue by 15.7%. Important to mention, this boost included a one-time capital sale to the German government totaling $3.05 million.

Consolidated financials can be found here.

The key catalyst for the company is a large scale adoption of its cloud-based computing solutions. However, the healthcare sector has been slow to adopt the technology due to fears of patient information security going online. The software allows for radiologists to make diagnostic decisions remotely, they can view large image files consisting of X-rays on their mobile devices. Comparing to existing imaging systems, the technology of the company does not compress images, rather they keep these images on its server.

The past 6 months brought in two vital contracts, one of them is a 5-year deal with the Wexler Medical Centre from Ohio State University worth $9 million. The second one was also a 5-year deal albeit was worth $6 million with a Palo Alto-based Radiology firm. The first phase of a $27 million deal was completed by the enterprise. They have implemented their technology in two major hospitals in the United States; these are the Brigham and Women's Hospital in Boston and Massachusetts General. These new contracts make up new revenue streams for the business and it deepens its scale in the North America segment. While wining contracts, the company decided last year that they would focus on other medical fields such as cardiology and ophthalmology. Both of these fields require a large amount of medical imaging.

While most companies are pushing hard to keep cash on hand, the company has been conducting a rather successful buyback program. The on-market share buyback initiative started from April 1st and is expected to last until 31 March 2021. Previously, the medical tech company ran a buyback program dating back to 2 April 2019 which resulted in over $840 thousand in shares purchased back by the company.

Data by YCharts

The equity is trading above both its 20 and 50-day simple moving averages, while recently a golden cross in favor of the upside has occurred. The golden cross has confirmed the upside momentum build up. Similar to the broad market indexes, the common stock also went through a sell-off period following the coronavirus pandemic spreading around the globe. With the upside momentum behind it, the company could make a push to $20 per share where our first resistance is, as long as the equity continues to trade above its simple moving averages. From just looking at the price graph, we can tell that the equity had a quick recovery to pre-pandemic levels already. What those who are long are contemplating right now is that will bullish outlook persist.

An important risk factor that could affect the enterprise poorly is if radiology practices around the globe turn to internalize systems development. This would imply that large scale contracts would not be signed again in the future. With management's ability to pursue large scale contracts, the company has to continue to pick up these aforementioned contracts. Another risk factor is the high premium the equity trades, at 124.4x earnings the company trades well above the healthcare industry average of 42.6x. Essentially the company is trading at a premium, even with the whole pandemic situation that is going on.

Growth figures in both earnings and profit margins have shown that the company is growing rapidly. New contracts with hospitals in the U.S have helped with increasing scale. Technicals show that the company has entered a bullish phase, as a golden cross occurred. The pandemic dip is over and the equity has rebounded to levels before the coronavirus outbreak. The medical technology company is a growth destination for investors seeking exposure in international developed markets. The pandemic has made sure we stay quarantined and the devices the company provides for medical practitioners allow for no contact check-ups.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Pro Medicus: Healthcare IT Developer With Impressive Growth Story - Seeking Alpha