Why might Pro Medicus shares soon be under pressure?

Pro Medicus Ltd (ASX: PME) shares are down more than 40% over the past 12 months, and in the next couple of weeks, the price might come under more pressure.

Index changes loom

That’s because S&P Dow Jones has just issued its quarterly rebalancing of the various indices, and Pro Medicus is set to be dropped from the S&P/ASX 50 Index (ASX: XFL), with minerals analysis company ALS Ltd (ASX: ALQ) to join.

The removal of Pro Medicus comes despite the company recently announcing several contract wins, including a five-year, $28 million contract renewal with Allegheny Health Network in the US.

Removal from an index can trigger the selling of a stock, as funds that track indices sell out of dropped stocks and buy into added ones.

With regard to the S&P/ASX 100 Index (ASX: XTO), uranium company Paladin Energy Ltd (ASX: PDN) will join the index, while grocery company Metcash Ltd (ASX: MTS) will be dropped.

Paladin shares are currently up 43.9% over a 12-month period, with Macquarie recently issuing a price target of $13.25 for Paladin shares compared to $9.52 currently.

Macquarie said Paladin had successfully ramped up production at its Langer Heinrich mine in Namibia and was also making “real progress” on its Patterson Lake South approvals in Canada.

Paladin recently reported that for the March quarter it had produced 1.29 million pounds of uranium at Langer Heinrich, up 5% from the previous quarter, “driven by strong processing plant performance”.

The Patterson Lake South Project had also had its environmental impact statement approved.

In the S&P/ASX 200 Index (ASX: XJO), there will be nine changes in all, with Elevra Lithium Ltd (ASX: ELV), Electro Optic Systems Ltd (EOS), Firefly Metals Ltd (ASX: FFM), and Kingsgate Consolidated Ltd (ASX: KCN) being added.

The companies being removed are Minerals 260 Ltd (ASX: MI6), Guzman Y Gomez Ltd (ASX: GYG), IDP Education Ltd (ASX: IEL), SiteMinder Ltd (ASX: SDR), Temple & Webster Group Ltd (ASX: TPW), and Web Travel Group Ltd (ASX: WEB).

Elevra shares are up an impressive 310.4% over the past year; however, the stock has come off a bit recently.

The company raised $275 million in an institutional placement in mid-May at $12.20 per share; however, the shares are now changing hands for $10.46.

Another large capital raise

Electro Optic Systems meanwhile is in the midst of a capital raise, having raised $150 million at $8 a share.

Shareholders in the company were also able to subscribe for up to $30,000 worth of shares at the same price, with that process ongoing this week.

EOS shares are currently changing hands for $9.98, meaning the raise is well in the money at the moment. Shareholders will find out on Friday how many shares they have been allocated.

The index rebalances will take effect from 22 June.

The post Why might Pro Medicus shares soon be under pressure? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has positions in Electro Optic Systems and Pro Medicus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems, SiteMinder, and Temple & Webster Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has positions in and has recommended SiteMinder. The Motley Fool Australia has recommended Pro Medicus and Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.