PME Trades at 112x Sales, Far Above Its Five-Year Average

Pro Medicus Ltd shares are trading at a price-to-sales ratio of 112.35x, against a five-year average of 82.69x, according to Rask Media. Revenue has grown over the past three years, so the elevated multiple is not resting on a shrinking sales base. The share price has simply moved ahead of revenue, Rask said.

Pro Medicus builds radiology software for hospitals and imaging centres. Its product lines cover radiology information systems and picture archiving. The Visage viewer, the flagship product, lets radiologists open large image files on mobile devices, something not previously possible. Visage also handles scheduling and billing, and speeds up interpretation and analysis, placing the company at every stage of the radiology process, Rask said.

For a growth company, comparing the price-to-sales ratio against its own history offers a rough valuation estimate, Rask Media said. The current multiple of 112.35x sits above the 82.69x average of the past five years. Rask said a ratio above its historical norm can mean the share price has risen faster than sales, or that sales have declined. PME's revenue has grown for three consecutive years, Rask said. A price-to-sales ratio is price divided by sales, so revenue growth alone works to lower the multiple when the share price holds. Narrowing the spread between 112.35x and 82.69x requires faster sales growth or a lower share price. Rask said context matters, and that no single metric should drive an investment decision.

Rio Tinto Ltd offers a contrasting read. The miner, founded in 1873, describes itself as a global leader in exploration, development, production and processing of minerals and metals. It is the world's second-largest mining and metals company, behind BHP Group. Its portfolio is grouped into aluminium, copper and diamonds, energy and minerals, and iron ore. Iron ore is its largest export and a key steel ingredient, so earnings track commodity prices, Rask said.

Rio Tinto's trailing dividend yield is 3.78%, compared with a five-year average of 6.80%, according to Rask. A dividend yield is payout divided by price, so a rising share price pushes the yield down. Rask said the gap could mean the share price has climbed faster than the dividend payout.

BHP Group, the world's largest miner and a direct Rio Tinto peer, carries an Alpha Score of 70 out of 100 on AlphaScala, a Moderate rating, and the full score is on the BHP stock page.

Rask Media said the price-sales ratio is one of many valuation techniques, and that investment decisions should not rest on a single metric.