2 Reasons to Watch MEDP and 1 to Stay Cautious

Medpace currently trades at $450.01 and has been a dream stock for shareholders. It’s returned 266% since August 2020, more than tripling the S&P 500’s 85.3% gain. The company has also beaten the index over the past six months as its stock price is up 30.7% thanks to its solid quarterly results.

Is now still a good time to buy MEDP? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Does MEDP Stock Spark Debate?

Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ:MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.

Two Positive Attributes:

1. Core Business Firing on All Cylinders

In addition to reported revenue, organic revenue is a useful data point for analyzing Drug Development Inputs & Services companies. 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 15.7% year-on-year growth. This performance was impressive and shows it can expand quickly without relying on expensive (and risky) acquisitions.

2. Outstanding Long-Term EPS Growth

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Medpace’s EPS grew at an astounding 36.7% compounded annual growth rate over the last five years, higher than its 20.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Fewer Distribution Channels than Larger Competitors

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $2.23 billion in revenue over the past 12 months, Medpace lacks scale in an industry where it matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive. On the bright side, Medpace’s smaller revenue base allows it to grow faster if it can execute well.

Final Judgment

Medpace’s merits more than compensate for its flaws, and with its shares topping the market in recent months, the stock trades at 37× forward P/E (or $450.01 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than Medpace

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