Medpace Stock: 43% Pullback; Time to Buy?
Stock Analysis & Ideas

Medpace Stock: 43% Pullback; Time to Buy?

Medpace Holdings (MEDP) is a contract research organization (CRO). It provides outsourced clinical development services to biotech, pharmaceutical, and medical device companies. It offers services that support the clinical development process from Phase I to Phase IV in several therapeutic areas while providing other related services as well.

Essentially, if a biotech company wants to do trials on a new drug, it can outsource those trials to a CRO like Medpace in the form of contracts. We are mildly bullish on the stock.

Medpace: Consistent, Profitable Growth

Medpace went public in 2016 and has returned over 460% since then. This is after a large 43%+ pullback from its highs. So, why has it performed so well? To start, MEDP is a company with a consistent track record of profitable growth.

Its revenue has grown consistently every year for as far back as the data goes (2013). In 2013, its revenue was $244 million; in the last 12 months, its revenue reached over $1.2 billion. In that same period, free cash flow has gone from $93.58 million to $221.2 million. This steady profitability allows MEDP to grow without having to issue shares, which dilutes shareholders.

Medpace’s Profitability Metrics

As mentioned above, MEDP is consistently profitable, but just how profitable is it? Its TTM gross margin comes in at 61.7%. This is significantly higher than other CRO companies like Charles River Laboratories (CRL), Laboratory Corporation (LH), and IQVIA Holdings (IQV), which have gross profit margins of 37.8%, 34.9%, and 33.5%, respectively. A higher gross margin leaves more room for profitability on the bottom line.

In fact, coming in at 27.2%, MEDP also has the highest return on equity out of these competitors. What’s impressive about this is not only the high ROE figure but the fact that it achieves this result without using debt. While competitors have moderate debt levels, MEDP has $82.8 million in cash and no debt.

Since the company’s ROE is greater than its weighted average cost of capital (WACC) of 8.3%, the company is considered a value creator. The same can be said if you use its cash return on invested capital (CROIC) of 25.2%. This concept is known as the economic spread. Companies with high returns on capital tend to perform very well in the long term, as MEDP has.

Contract Research Organization Services: A Growing Market

Data from Fortune Business Insights states that the global CRO services market is expected to increase from $73.38 billion in 2022 to $163.48 billion by 2029. This represents a CAGR of 12.1% for the 2022-29 forecast period. The report also states that CRO revenue is correlated to the R&D budgets of research companies. If R&D spending grows in the future, then the CRO market will keep growing.

There is an increasing need for CRO services due to the “need for efficient and cost-effective drug development.” According to the same report, outsourcing R&D often leads to internal cost structure optimization due to the economies of scale of CRO companies. Therefore, it makes sense for this market to keep growing.

Recent Earnings and Guidance

MEDP released earnings earlier this week. Its normalized EPS of $1.71 beat estimates by $0.40, and revenue of $330.95 million beat estimates by $3.86 million. GAAP EPS came in at $1.69 compared to the $1.14 in EPS from the same period last year. Also, revenue grew 27.3% year-over-year. Net new business awards came in at $423 million, 18.8% year-over-year, and the company’s backlog reached $2.1 billion compared to $1.6 billion last year.

MEDP also released 2022 guidance; it expects revenue to land between $1.4 billion to $1.46 billion, implying 22.6% to 27.8% growth. Net income is expected to grow 12.2% to 18.8%, while EPS is expected to grow 18.9% to 26% year-over-year.

The reason EPS will see higher growth than net income is because the company bought back $425.9 million worth of shares in the past quarter. With a market cap near $4.4 billion, those buybacks have surely made an impact. The company was not doing many buybacks before then, so we like how management was patient to wait for a large share price drop to start buying back in bulk.

The purchases were made at an average price near $155 per share, higher than today’s share price but about 33% lower than all-time highs. MEDP still had approximately $264.6 million left in its buyback program by the end of Q1. Therefore, the lower the stock goes, the better.


There are a few risks when it comes to MEDP stock. The biggest risk is that the company mainly serves small biopharma companies. 79% of its Q1 2022 revenue came from Small Biopharma, while Mid-Sized Biopharma and Large Biopharma made up 15% and 6% of revenues, respectively. Small biotech companies often rely on funding from venture capital funds or other sources. In a recession or economic slowdown, funding could slow down.

In the latest conference call, CEO August Troendle said, “At the time of our last call, we had seen little to no evidence of funding challenges by our clients. This has evolved, and more recently, we have seen a number of delayed or canceled programs due to funding.”

He continued, “If the funding environment for our clients does not improve in the next few months, this could pose a challenge to our 2022 and 2023 growth plans. However, at this point, we continue to anticipate 2022 revenue and profit fall within our prior guidance ranges.”

This makes MEDP potentially more cyclical than some of its peers, which earn a larger percentage of their revenues from large companies. Nonetheless, management is still confident in its guidance for now.

Besides that risk, according to TipRanks’ Risk Analysis, Medpace has disclosed 35 risks in its latest quarterly report, most of which come from the Legal & Regulatory category.


Medpace used to be richly valued, but it is now trading at much more reasonable levels. Its TTM price-to-free-cash-flow ratio is just under 20x. Similarly, its P/E ratio is just under 21x. Looking forward to 2022 and 2023, MEDP is expected to show EPS of $5.90 and $6.62, respectively. This implies forward P/E multiples of 22x and 19.7x, respectively.

After 2023, MEDP is still expected to grow at a double-digit percentage for years to come, making its valuation multiple reasonable, in our opinion.

Wall Street’s Take

Turning to Wall Street, MEDP earns a Hold consensus rating based on just two Hold ratings and no Buy or Sell ratings. The average Medpace price target of $160 implies 22.9% upside potential.


Medpace is a highly profitable company that has shown consistent growth and profitability. MEDP, along with the CRO market, is projected to grow at a double-digit CAGR for several years.

Although there is the added risk of MEDP’s exposure to small biotech companies, the company makes up for this risk by having no debt, whereas other CRO companies generally have more debt.

Also, its valuation has come down to reasonable levels, but the stock is not criminally undervalued just yet. Therefore, we only have a small position that we would like to add to on any major drops.

Discover new investment ideas with data you can trust.

Read full Disclaimer & Disclosure

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More


Price Change
S&P 500
Dow Jones
Nasdaq 100


Price Change
S&P 500
Dow Jones
Nasdaq 100
Russell 2000

Popular Articles