Medpace has been treading water for the past six months, recording a small loss of 4.4% while holding steady at $334.43. The stock also fell short of the S&P 500’s 7.6% gain during that period.
Is now the time to buy MEDP? Find out in our full research report, it’s free.
Why Does Medpace Spark Debate?
Founded in 1992, Medpace Holdings (NASDAQ:MEDP) provides full-service clinical development services to pharmaceutical, biotechnology, and medical device companies, specializing in the design and management of complex clinical trials.
Two Things to Like:
1. Core Business Firing on All Cylinders
Investors interested in Drug Development Inputs & Services companies should track organic revenue in addition to reported revenue. This metric gives visibility into Medpace’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Medpace’s organic revenue averaged 20.6% year-on-year growth. This performance was fantastic and shows it can expand quickly without relying on expensive (and risky) acquisitions.
2. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Medpace’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
One Reason to be Careful:
Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Medpace’s revenue to rise by 2.1%, a deceleration versus its 20.2% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
Medpace’s positive characteristics outweigh the negatives. With its shares lagging the market recently, the stock trades at 26.6× forward price-to-earnings (or $334.43 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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