Why a Long-Term View for Medpace Stock Is Bullish…

Medpace Weakness Means Opportunity

A small-cap healthcare stock with high prospects is Medpace Holdings Inc (NASDAQ:MEDP), a provider of third-party services to the pharmaceutical and medical devices area.

Trading at roughly 23% off its 52-week high of $65.09, the decline in Medpace stock makes for a more reasonable entry point despite being up around 37% this year.

Medpace provides the key Phase I to Phase IV clinical development services to global biotechnology and pharmaceutical companies along with the medical device makers.

In the biotech space, these pre-commercialization trial periods are critical for potential drugs and compounds.

In the case of Medpace, the company focuses on the areas of oncology, cardiology, metabolic disease, endocrinology, central nervous system, and anti-viral and anti-infective.

Since surging after the upside trade gap in late July 2018, MEDP stock failed to break $65.00 and has settled in a sideways channel with support at around $50.00—the bottom of the trade gap.

Chart courtesy of Medpace Holdings, Inc. (MEDP)

The downside risk for Medpace stock is around $40.00 if the stock breaks lower from its current channel, so be careful.

Strong Prospects for MEDP Stock

Medpace has grown its revenues in four consecutive years but the concern is that the growth tailed off at 3.46% in 2017, well below the four-year compound annual growth rate (CAGR) of 12.44%.

(Source: “Medpace Holdings Inc.,” MarketWatch, last accessed December 21, 2018.)

The positive is that Medpace could see its revenues jump to $696.91 million in 2018 followed by $796.0 million in 2019. (Source: “Medpace Holdings, Inc. (MEDP),” Yahoo! Finance, last accessed December 21, 2018.)

Medpace is generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA), profits, and free cash flow (FCF).

EBITDA has increased in four straight years, but the growth of 0.66% in 2017 was the lowest in four years.

(Source: MarketWatch, op cit.)

Medpace is profitable on both a GAAP and adjusted basis. The GAAP earnings surged by triple digits in 2016 and 2017.

(Source: Ibid.)

On an adjusted basis, MEDP reported $1.50 per diluted share in 2017. For 2018, Medpace is expected to drive earnings to $2.50 per diluted share followed by $2.88 per diluted share in 2019. (Source: Yahoo! Finance, op cit.)

Medpace is delivering positive FCF including a four-year high of $85.66 million in 2017.

(Source: MarketWatch, op cit.)

Analyst Take

My bullish thesis for Medpace stock is based on strong demand for third-party clinical testing services.

The fundamentals are sound and MEDP stock looks attractive trading at 17.63-times its 2019 EPS.