PME.AX — Pro Medicus Limited | Equity Research Report

Pro Medicus Limited (PME.AX)

Healthcare Equipment & Supplies · ASX · Medical Imaging Software

A$117.56

29 March 2026

Market Cap

A$12.3B

A$12.1B

P/E (TTM)

106.6x

EV/EBITDA

70.0x

FCF Yield

0.92%

ROIC

270%

52W Range

$108 – $336

Analyst Target

A$220

1. Business Overview

Pro Medicus is a Melbourne-headquartered medical imaging software company that has quietly become one of the most dominant players in US hospital radiology. Its flagship product, Visage 7, is a cloud-native enterprise imaging platform used by some of the largest and most prestigious health systems in the United States — including NYU Langone, UCSF, and Mass General Brigham. The platform lets radiologists view and manipulate 2D, 3D, and 4D medical images with a speed that competitors haven't been able to match.

What makes PME unusual is its extreme operating leverage. The company has only 132 employees globally but generated A$220M in revenue and A$115M in net income in FY25. It writes its own code, owns its IP entirely, and runs a SaaS-like model where hospitals pay per transaction over multi-year contracts. Revenue is nearly 93% Visage 7/PACS, with the legacy RIS product contributing the remainder.

Geographically, North America is everything — contributing 90% of external revenue in FY25 at A$190.87M, up 36% year-on-year. Australia (A$17.70M) and Europe (A$4.34M) are rounding errors. The company has won contracts at many of the top 20 US health systems and has a reported pipeline of approximately A$1 billion in contracted but unrecognized revenue.

Revenue by Product (FY25)

Product	Revenue (A$M)	% of Total
Visage 7 / PACS	197.02	92.5%
Radiology Information Systems (RIS)	15.89	7.5%
Other	0.08	0.0%
Total	212.98	100%

Revenue by Geography (FY25)

Region	Revenue (A$M)	% of Total	YoY Growth
North America	190.87	89.6%	+35.8%
Australia	17.70	8.3%	+4.9%
Europe	4.34	2.0%	+8.5%
Total External	212.91	100%	+31.9%

2. Financial Performance

PME's financial trajectory over the past five years is remarkable. Revenue has compounded at 34% annually from FY21 to FY25, while margins have expanded in lockstep. The gross margin hit 96.6% in FY25 — a number that would make most software companies jealous — and the EBITDA margin reached 78.2%. These margins are a direct consequence of the company's asset-light model: almost no cost of goods sold, minimal capex beyond capitalised software development (~A$7M/year), and very lean headcount.

Net income has grown from A$23M in FY20 to A$115M in FY25, a fivefold increase. Free cash flow closely tracks net income at A$111.5M, reflecting high earnings quality with no meaningful divergence between reported profits and actual cash generation.

Historical Income Statement (A$M)

Item	FY25	FY24	FY23	FY22	FY21
Revenue	220.54	166.33	127.33	94.11	68.06
Gross Profit	212.99	157.52	118.86	86.33	60.38
EBITDA	172.48	125.59	94.23	70.35	49.76
EBIT	165.25	117.08	86.30	63.04	42.56
Net Income	115.22	82.79	60.65	44.44	30.85
EPS (Diluted, A$)	1.10	0.79	0.58	0.42	0.29
DPS (Gross, A$)	0.67	0.50	0.36	0.26	0.19

Key Margins

Margin	FY25	FY24	FY23	FY22	FY21
Gross Margin	96.6%	94.7%	93.4%	91.7%	88.7%
EBITDA Margin	78.2%	75.5%	74.0%	74.8%	73.1%
Operating Margin	74.9%	70.4%	67.8%	67.0%	62.5%
Net Margin	52.2%	49.8%	47.6%	47.2%	45.3%

Balance Sheet Snapshot (FY25)

Cash & Short-Term Investments

A$209.2M

Total Debt (Lease Liabilities Only)

A$2.3M

Net Cash Position

A$206.9M

Total Shareholders' Equity

A$257.0M

Cash Flow Summary (A$M)

Item	FY25	FY24	FY23	FY22	FY21
Operating Cash Flow	118.87	86.78	64.77	62.23	39.02
Capital Expenditure	(7.38)	(6.69)	(6.45)	(9.02)	(7.69)
Free Cash Flow	111.50	80.08	58.33	53.20	31.33
Dividends Paid	(49.11)	(36.55)	(26.11)	(18.79)	(13.55)

3. Valuation — Enterprise DCF

I've built a 10-year DCF model using the enterprise approach (free cash flow to firm discounted at WACC). Given PME's extreme growth profile and the recent stock selloff (down 45% YTD following AI disruption concerns raised at the H1 FY26 results), the valuation challenge here is projecting how long the company can sustain above-market growth rates.

Key DCF Assumptions

Assumption	Bull	Base	Bear
Y1 Revenue Growth	35%	28%	20%
Y5 Revenue Growth	18%	15%	10%
Y10 Revenue Growth	6%	5%	3%
Steady-State FCF Margin	~55%	~52%	~48%
WACC	7.0%	7.6%	8.5%
Terminal Growth Rate	3.5%	3.0%	2.5%

WACC Build-Up

Component	Value
Risk-Free Rate (Aus 10Y Bond)	4.30%
Beta (5Y Monthly)	0.55
Market Risk Premium	6.00%
Cost of Equity (CAPM)	7.60%
Debt Weight	~0% (negligible)
WACC	7.60%

DCF Output — Scenario Pricing

🐻 Bear Case

A$35.74

Slower adoption, AI competition erodes moat

📊 Base Case

A$67.52

Continued strong growth, gradual deceleration

🐂 Bull Case

A$114.86

Pipeline converts aggressively, new verticals

📍 Current Price

A$117.56

Trading at top-end of bull case

Commentary: The current price of A$117.56 sits above even the bull case DCF value of A$114.86. This is instructive: to justify the current price purely on cash flows, you need to assume ~35% revenue growth in Year 1, declining only gradually to 6% by Year 10, plus a low 7.0% discount rate and a generous 3.5% terminal growth rate. The base case — still aggressive by most standards — implies the stock is roughly 43% overvalued. This doesn't necessarily mean the stock will fall further; it means the market is pricing in truly exceptional execution over a very long runway.

Sensitivity Analysis — Implied Share Price (A$)

WACC ↓ / Terminal Growth →	2.0%	2.5%	3.0%	3.5%	4.0%
6.0%	$84	$94	$106	$123	$149
6.5%	$74	$81	$90	$102	$118
7.0%	$66	$72	$78	$87	$98
7.6% (Base)	$59	$63	$68	$73	$81
8.0%	$55	$58	$62	$67	$73
8.5%	$50	$53	$56	$60	$64
9.0%	$46	$48	$51	$54	$58

Terminal value accounts for approximately 71% of total enterprise value in the base case — high, but typical for a company still in its high-growth phase. The sensitivity table shows that only the most optimistic combination of low WACC (6.0–6.5%) and high terminal growth (3.5–4.0%) can justify prices near the current level.

4. Valuation — Economic Profit

The Economic Profit framework reinforces what the DCF is telling us, but from a different angle. Instead of projecting cash flows, we ask: is this company creating value above its cost of capital?

Economic Profit Calculation (FY25)

Component	Value
NOPAT	A$116.58M
Average Invested Capital	A$43.20M
ROIC	269.9%
WACC	7.6%
ROIC − WACC Spread	+262.3%
Economic Profit (FY25)	A$113.3M

A 270% ROIC is extraordinary by any standard. PME earns this because it requires almost no invested capital to operate — no factories, no heavy infrastructure, minimal working capital, and its primary asset (the Visage codebase) has been capitalised at modest historical cost. The ROIC-WACC spread of 262% is one of the widest I've seen on the ASX. Every dollar of capital deployed in this business generates A$2.70 of after-tax operating profit annually.

The challenge, as with the DCF, is that the stock price has already capitalised an enormous amount of future economic profit. The current A$12.3B market cap against A$50M of invested capital tells you the market is paying A$246 per dollar of invested capital — a bet that the EP stream will grow enormously and persist for decades.

5. Valuation Summary — Football Field

Implied Share Price (A$) — Range by Methodology

Enterprise DCF

$36 – $115

Base: $68

Economic Profit (Capital-adjusted)

$20 – $110

Analyst Consensus (13 analysts)

$145 – $300

Mean: $220

A$117.56

There's a significant disconnect between analyst targets (mean A$220, ranging from A$145 to A$300) and my DCF-derived fair value (base A$68). This gap largely reflects methodology: analysts are using forward multiples and near-term earnings estimates, while the DCF models the full path of cash generation and required returns. The market has recently sided more with the DCF view, repricing the stock down 45% year-to-date after AI disruption fears emerged at the H1 FY26 results.

6. Savings Account Test (FCF/EV)

If you bought the entire business at today's enterprise value of A$12.1 billion, the A$111.5M in free cash flow it generated in FY25 would be like earning an interest rate of:

0.92% per year

Compare that to:

Benchmark	Yield	vs. PME FCF/EV
Australian Government 10-Year Bond	4.30%	PME yields 3.38% less
Term Deposit (12-month, major bank)	~4.50%	PME yields 3.58% less
ASX 200 Earnings Yield (inverse of P/E ~17x)	~5.90%	PME yields 4.98% less
PME FCF/EV ("Savings Account Rate")	0.92%	—

A 0.92% yield on an equity investment in a single company is extremely thin by any measure. You could earn nearly five times as much in a risk-free term deposit. The only rational justification for accepting this yield is a very high conviction that PME's free cash flow will grow rapidly for many years — which, to be fair, it has been doing (FCF has grown at 40%+ CAGR over the past five years). But the margin of safety is razor-thin. Any stumble in execution, competitive disruption (e.g., from AI-enabled imaging), or multiple compression could result in significant downside.

7. Allen/Plato Red Flags Assessment

Applying the framework developed by Dr David Allen of Plato Investment Management across 12 red flag categories. Companies accumulating 8 or more combined flags and watch items have historically underperformed by approximately 20%.

Flags

Watch Items

Clear

Red Flag Category	Status	Detail
1. Negative Operating Cash Flow	CLEAR	OCF of A$118.9M — strong and growing consistently.
2. Earnings-to-Cash-Flow Divergence	CLEAR	Net Income A$115.2M vs OCF A$118.9M. Cash conversion ratio of 103% — textbook quality.
3. Excessive Debt	CLEAR	Net cash position of A$206.9M. Only debt is A$2.3M in lease liabilities. Interest coverage is essentially infinite.
4. Insider Selling	CLEAR	Co-founder/CEO Sam Hupert retains substantial stake. No significant director disposals flagged.
5. Executive Remuneration	CLEAR	CEO compensation is reasonable relative to the company's market cap and profitability. Alignment with shareholders through equity holdings.
6. Corporate Governance	CLEAR	Co-founder led, long-tenured board. Small board size is appropriate for a company of 132 employees.
7. Related Party Transactions	CLEAR	No material related party transactions identified.
8. Auditor Quality	CLEAR	Audited by a recognised firm. Audit fees (A$0.63M FY25) are proportionate.
9. Aggressive Growth Expectations	WATCH	Market pricing embeds 25%+ revenue growth for many years. Any slowdown could trigger significant de-rating. H1 FY26 saw a 24% single-day drop on AI disruption fears despite strong results.
10. High Beta (Danger > 1.5)	CLEAR	Beta ~0.55 (5Y monthly). Well below the 1.5 danger threshold, though recent volatility has been extreme.
11. Non-Standard Performance Metrics	CLEAR	PME reports clean IFRS financials. No adjusted EBITDA add-backs or non-standard metrics used to flatter results.
12. Overstated Receivables/Inventory	WATCH	Trade receivables grew 34% to A$64.1M (vs revenue +32%), with days outstanding stretching to ~95 days. Not alarming, but worth monitoring — large hospital contracts can have lumpy collection patterns.

VERDICT: CLEAN — 0 Flags, 2 Watch Items (well below 8-item danger zone)

PME's financials are exceptionally clean. No debt, superb cash conversion, aligned management, and transparent reporting. The two watch items — valuation risk from aggressive growth pricing and stretching receivables — don't indicate fundamental deterioration, but they're worth keeping on the radar. The real risk for PME isn't in its financial statements; it's in whether the future can live up to what the market has already priced in.

8. Risks & Considerations

AI Disruption: The February 2026 selloff was triggered by fears that AI could disrupt PME's competitive moat. If cloud-native AI imaging platforms can replicate Visage's speed and rendering quality, PME's pricing power could erode. PME has pushed back, arguing that its architecture is purpose-built for speed and that AI augments rather than replaces its platform — but this remains the single biggest risk.

Customer Concentration: PME sells to very large US health systems. Losing even one major contract (or having a renewal at lower pricing) could meaningfully impact revenue. The top customer historically represented ~11% of revenue.

Valuation Risk: At 107x trailing earnings and 70x EV/EBITDA, any disappointment will be punished severely — as the 24% single-day drop in February demonstrated. The stock has already fallen 45% from its 52-week high but remains expensive by absolute standards.

FX Exposure: ~90% of revenue is USD-denominated while costs are partly AUD. A strengthening AUD would compress reported margins and earnings.

Small Company Risk: With only 132 employees, PME's intellectual capital is highly concentrated. Key-person risk is real, particularly around the engineering team that maintains the Visage rendering engine.

9. Analyst Consensus

Rating	# Analysts
Strong Buy	4
Buy	7
Hold	2
Sell	0
Strong Sell	0
Mean Rating	1.85 (Buy)

Mean target price: A$220.14 | Median: A$220.00 — implying ~87% upside from the current price. Notable individual targets range from A$145 (Moelis, Sarah Mann) to A$300. The consensus has shifted dramatically bullish since the recent selloff, with the mean recommendation moving from 2.93 (Hold) in mid-2025 to 1.85 (Buy) today.

Pro Medicus (PME.AX) — Plain English Summary

What this company does, what it's worth, and whether the numbers look healthy

A$117.56

29 March 2026

What Does Pro Medicus Do?

Pro Medicus makes software that helps doctors look at medical scans — X-rays, MRIs, CT scans, that sort of thing. Their software (called Visage 7) is considered the fastest and best in the world at displaying these images, and it's been adopted by many of the biggest and most prestigious hospitals in the United States. Think of it as the "Google Chrome" of medical imaging — once doctors use it, they don't want to go back to anything else.

The company has just 132 employees in Melbourne but makes over A$220 million per year, almost all of it from American hospitals paying ongoing fees to use the software. It's a wildly profitable business — for every dollar of revenue, the company keeps about 50 cents as pure cash profit.

How Has the Business Been Performing?

Exceptionally well. Revenue has more than tripled in the past four years (from A$68M to A$221M), and profits have nearly quadrupled. The company has A$209 million in cash sitting in the bank with essentially zero debt. Cash generated from operations closely matches reported profits, which tells us the earnings are real — not accounting tricks.

However, the share price has had a very rough 2026. It was trading above A$285 at mid-2025, then fell 45% to around A$118 today. The trigger was fears that artificial intelligence could eventually disrupt the company's competitive advantage.

What Is It Actually Worth?

This is where it gets tricky. I ran a detailed valuation that estimates what the company's future profits are worth in today's dollars. Even under optimistic assumptions (28% revenue growth slowing to 5% over ten years), the model suggests a fair value of about A$68 per share. Under very aggressive assumptions — the kind that require everything to go right — it stretches to about A$115.

At A$117.56, the current price is essentially at the top end of even the most optimistic scenario. The 13 analysts who cover the stock disagree — they think it's worth A$220 on average — but analysts tend to anchor on shorter-term earnings growth rather than the full picture of what you're paying today versus what you'll get back over time.

The Savings Account Test

If you imagined buying the entire company at today's price (A$12.1 billion), the profit it generates would be like putting that money in a savings account earning:

0.92% per year

Meanwhile, a regular term deposit at the bank pays about 4.5%. So you're accepting a much lower starting yield in exchange for the hope that PME's profits grow fast enough to make up the difference over time.

Are There Any Red Flags?

No. The company's finances are remarkably clean. It has no meaningful debt, its reported profits are backed by real cash, management has skin in the game through share ownership, and there's no funny business with the accounting. The only things worth watching are (1) whether the company can sustain its very high growth rate (the share price depends on it), and (2) receivables (money owed by customers) have been growing slightly faster than revenue.

FINANCIAL HEALTH: EXCELLENT — 0 out of 12 red flags triggered

Bottom Line

Pro Medicus is an outstanding business — perhaps the highest-quality software company on the ASX. The problem isn't the company; it's the price. Even after a 45% decline, the stock trades at over 100 times earnings and yields less than 1% on a free-cash-flow basis. You're paying a premium price for a premium business, which means the margin for error is very slim. If PME continues to execute at its current pace, the price may eventually grow into its valuation. But if growth slows — whether from competition, AI disruption, or simply running out of new hospitals to sign — the downside from here could still be significant.