Pro Medicus Ltd (ASX: PME) is once again trading lower, with its share price changing hands for $201.80 at market close on Friday. 

Having declined 23% since 3 March without any material announcements, investors may be left wondering what has transpired. 

Let's dig deeper.

Reality check: The valuation

Investors have likely come to terms with the fact that Pro Medicus is an expensive stock. 

Trading at a price-to-earnings (P/E) ratio of 215, it's hard to argue otherwise. It is expensive relative to not just the ASX wider market, which has traded at a historical average of 16, but also itself. Back in 2012, its P/E ratio sat at 20. Over the past 5 years, its median PE has expanded to 123.

What's it worth?

Given the range of outcomes, it's hard to determine what Pro Medicus is really worth. 

Pro Medicus certainly has a lot going for it and could grow into a much larger business. But the question is, how much bigger?

The company's flagship Visage 7 software is a market leader in terms of speed, functionality, and scalability. It boasts the fastest system and speed in the industry (ability to stream images). Visage 7 reportedly makes the diagnostic process 30% to 50% more efficient. It also improves accuracy, which is especially advantageous in the notoriously litigious U.S. It's easy to see why it has attracted a lot of support from industry professionals.  

Its track record speaks for itself, with the company consistently renewing existing contracts and winning new clients. It has been able to achieve this while increasing its price point. 

However, the stock is priced to perfection. Any slowdown in the volume of renewals would be likely to weigh on its valuation.

Similarly, if a valuable client were to decide not to renew, this would not be well received by the market.

With JP Morgan forecasting a 40% chance of a recession in the U.S. according to Reuters, its plausible some clients may not have the funds to renew. It may be beyond Pro Medicus' control and simply come down to budget cuts.

Several long-term tailwinds also strongly run its favour. These include an ageing population, the increased use of diagnostic imaging, cloud adoption, larger data sets, and remote access. This means that Pro Medicus is likely to continue to perform well in the long run, even if impacted in the short term. 

Pro Medicus also operates in a large addressable market of radiology in the U.S. Fortune Business Insights estimates the U.S. diagnostic imaging services market to grow from $130.38 billion in 2023 to $206.84 billion by 2030 at a compound annual growth rate (CAGR) of 6.8%. Last year, Pro Medicus estimated it had captured just 7% of this market, leaving plenty of upside potential. 

Is this a buying opportunity?

In a 'risk off' equities environment, it is usually the most expensive stocks that are punished the most. Between February 2024 and February 2025, Pro Medicus rocketed more than 200%. It's understandable that investors have taken some profits.

But, with the company approaching $200 for the first time since November 2024, there is an opportunity. Those looking to add this high-performing ASX 200 healthcare stock to their portfolio appear to be in luck.