Is this one of the best ASX 200 stocks money can buy?

High margins, strong growth, and global expansion have helped this ASX company stand out to me. The post Is this one of the best ASX 200 stocks money can buy? appeared first on The Motley Fool Australia.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More High margins, strong growth, and global expansion have helped this ASX company stand out to me. You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More Pro Medicus Ltd (ASX: PME) has long been one of the standout S&P/ASX 200 Index (ASX: XJO) growth stocks. The medical imaging software specialist has delivered exceptional earnings growth over many years, supported by global demand for its Visage imaging platform.

But like many technology companies, its share price has experienced volatility recently as investors worry about valuations and the potential impact of artificial intelligence (AI). That raises an obvious question for investors: Should you buy Pro Medicus shares at current levels? One of the biggest attractions of Pro Medicus is its strong financial performance. The company continues to deliver impressive growth, with revenue from ordinary activities rising 28.4% to $124.8 million in the first half and underlying profit before tax climbing almost 30%.

These kinds of numbers highlight the demand for its technology and the scalability of its business model. Even more impressive is the profitability. Pro Medicus operates with underlying EBIT margins above 70%, which is extraordinarily high for a software company. During the recent half-year, Pro Medicus announced seven new contracts with a combined minimum value exceeding $280 million. These agreements include deals with major hospitals and healthcare institutions across the United States and Europe.

Importantly, many of these contracts are long-term and generate recurring revenue as the software is implemented and used. The company's total contracted volume for the next five years has now exceeded $1 billion for the first time. Another growth driver is Pro Medicus' expansion into new medical imaging disciplines. The company's Visage platform initially focused on radiology, but it is now expanding into other areas such as cardiology.

Management noted that new deals are increasingly including the cardiology module alongside the core imaging offering. This effectively expands the company's addressable market and gives existing customers more products to adopt over time. Artificial intelligence has been a major topic in the technology sector recently, and some investors worry that it could disrupt software companies. However, Pro Medicus' management believes these concerns are overstated.

CEO Dr Sam Hupert noted that the Visage platform is built on proprietary technology developed over more than 30 years and is not easily replicated. He also pointed out that AI tools are available to the company's developers, meaning the technology could actually enhance productivity rather than undermine the company's competitive advantage. Finally, the ASX 200 stock's recent share price weakness has arguably made the risk-reward more interesting.

Pro Medicus shares have historically traded at a premium valuation due to the company's strong growth and exceptional margins. When sentiment toward technology stocks turns negative, high-quality businesses like this can get caught up in the sell-off. That doesn't necessarily reflect a deterioration in the underlying business. In fact, the company continues to win new contracts and expand its product suite.

But when I look at the business, I see an ASX 200 stock with strong growth, extremely high margins, a growing global footprint, and opportunities to expand into new medical imaging fields. Add in the recent share price weakness and concerns about AI that management believes are misplaced, and I think there are still good reasons why long-term investors might consider Pro Medicus shares at current levels.

Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has recommended Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This report covers the latest developments in artificial intelligence. The information presented highlights key changes and updates that are relevant to those following this topic.

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