Why Pro Medicus Limited shares are smoking hot today

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Shares in software-as-a-service medical imaging business Pro Medicus Limited (ASX: PME) rocketed more than 10% higher to $7.95 in trade today after the group announced a new deal for its Visage 7 platform with U.S. healthcare group Mercy Health.

The deal is reportedly worth more than $15 million over the next seven years in what Pro Medicus’s ebullient CEO described as “an industry defining deal for us”.

The agreement reportedly means that some 25 million images from Mercy’s current archive can be combined onto the interoperable Visage 7 system in a “totally modular fashion”.

The project is scheduled for completion by early 2019 and its successful implementation will be another big step forward for Pro Medicus in its journey to become a market leader in the online medical imaging platform space.

“Our goal is to be the single enterprise imaging platform for all medical images and multimedia within the healthcare enterprise and this is a very significant step in that direction,” boasted the CEO.

That confidence might not be misplaced as Pro Medicus looks one of the ASX’s best up-and-coming companies as it operates in huge global addressable markets and appears to have a market-leading product that offers the attractive economic characteristics of sticky, recurring revenues, on high gross profit margins.

Pro Medicus’s robust outlook is no secret anymore though, with the company valued at more than $730 million despite posting revenue and profit of just $16.6 million and $5.1 million respectively for the six-month period ending December 31 2017.

Admittedly these are backward looking stats and the group’s high profit margins are a standout feature given it has plenty of new revenue to come online as the result of its new contract wins.

I’d rate the stock a hold for now, but wouldn’t be surprised to see it get a wriggle on into the new financial year.

Others on an arguably even bigger tear in the software-as-service space include Wisetech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO), both of which are already several multiples the market value size of Pro Medicus.