The stock of Medpace Holdings gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $164.88 per share and the market cap of $5.9 billion, Medpace Holdings stock shows every sign of being significantly overvalued. GF Value for Medpace Holdings is shown in the chart below.
Because Medpace Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 30.9% over the past three years and is estimated to grow 16.96% annually over the next three to five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Medpace Holdings has a cash-to-debt ratio of 2.92, which is in the middle range of the companies in the industry of Medical Diagnostics & Research. The overall financial strength of Medpace Holdings is 8 out of 10, which indicates that the financial strength of Medpace Holdings is strong. This is the debt and cash of Medpace Holdings over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Medpace Holdings has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $955 million and earnings of $4.22 a share. Its operating margin of 18.76% better than 78% of the companies in the industry of Medical Diagnostics & Research. Overall, GuruFocus ranks Medpace Holdings's profitability as fair. This is the revenue and net income of Medpace Holdings over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Medpace Holdings is 30.9%, which ranks better than 83% of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth is 21.1%, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Medpace Holdings's ROIC was 13.49, while its WACC came in at 10.36. The historical ROIC vs WACC comparison of Medpace Holdings is shown below:
Overall, the stock of Medpace Holdings appears to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. To learn more about Medpace Holdings stock, you can check out its 30-year Financials here.
