Asprippa,You picked a doozy of a stock to look at. PME is an...

Asprippa,

You picked a doozy of a stock to look at. PME is an outlier on several dimensions.
PME is currently trading on a stratospheric trailing PE of 191. In other words, based on last year’s earnings, it would take 191 years of PME’s profit to earn back the price of the share. However, unlike many other tech growth stocks priced for stratospheric growth, PME actually pays a dividend and has virtually no debt – it internally funds its own growth. A lot of their revenue is from long term, annuity-style, pay-as-you-go contracts with guaranteed minimums. Nonetheless, at last year’s dividend rate, PME would take 388 years for the dividends to pay back the price of the share. (That’s a dividend yield of 0.26%)

That begs the question as to why anyone would allow a substantial fraction of their wealth to continue riding on this stock? Am I nuts? Possibly. The rationale is that PME just might become the Microsoft or the Ma Bell of medical image handling. That is PME’s goal and they keep attaining the milestones on that path.

PME have already signed up various prestigious health service providers in the US, such as the Mayo clinic, Yale University, Harvard, Mercy etc. The hope is that the other health providers will look around and almost from necessity, end up saying: we’ll have what they are having – the network effect. We fantasise that PME will become so ubiquitous, and have such a stranglehold, that everybody bitches and complains about them but cannot get by without their products and services. However, PME are not selling to a mass market, rather the opposite, they are selling to inherently conservative medical service providers.PME’s customers will exhibit considerable inertia, both in being persuaded to come on board and we shareholders fervently hope that they exhibit similar inertia about leaving.

Do I worry about my holding in PME. Every day! I was worried when they were $5, $9, $12, $17, $23…. Is the market big enough to accommodate PME growing into their PE? Their present sales are circa $50m in what they say is more than a one billion market. So yes, PME have the room to grow but they will have to capture a fair bit of that market to justify the hopes and dreams that are already built into their current price. They will have to become dominant like Microsoft or Ma Bell.

While ever PME’s PE is so extreme, it is always only one hiccup away from a brutal fall in its share price. By brutal I mean that the price could halve or worse. But it is also possible that an infotech firm like Alphabet could decide to buy PME while they can still do it with their lose change. That might cause a fantastic rise in its share price. So, a melt down or a melt up are both possibilities. The two founders of PME still control about 55% of the stock, so a buyer would have to dangle a carrot big enough to persuade them.

Here is what the CEO, Sam Hupert, said in June last year after they had signed up Mercy.

“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, one which we will continue to build on.”

Here is what he said on 20/8/2018.

“As for the pipeline, we commented at the half year that we thought it was the best it’s been and we think this is still the case. We haven't lost any of the opportunities, they are all progressing through the cycle. We’ve also had a number of new opportunities come in so, if anything, the pipeline is even bigger than it was at the half even after taking into account the fact that the Mercy archive opportunity has now moved from pipeline to contract."

Sam Hupert’s statements don’t read like those of a man looking to sell just yet.
Rather, Hupert sounds like a man for whom the world looks like an oyster – his oyster.

You can read what Hupert said in the more recent open briefing dated 21/2/2019.

https://hotcopper.com.au/threads/ann-open-briefing-ceo-on-hy19-results.4645697/?post_id=37511249

Cheers