The stock of Medpace Holdings (NAS:MEDP, 30-year Financials) 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 $164.05 per share and the market cap of $5.9 billion, Medpace Holdings stock appears to be 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 16.62% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Medpace Holdings has a cash-to-debt ratio of 2.41, which ranks in the middle range of the companies in the industry of Medical Diagnostics & Research. Based on this, GuruFocus ranks Medpace Holdings's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Medpace Holdings over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Medpace Holdings has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $925.9 million and earnings of $3.84 a share. Its operating margin is 18.04%, which ranks better than 76% of the companies in the industry of Medical Diagnostics & Research. Overall, the profitability of Medpace Holdings is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Medpace Holdings over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Medpace Holdings is 30.9%, which ranks better than 84% of the companies in the industry of Medical Diagnostics & Research. The 3-year average EBITDA growth rate 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 12.65, while its WACC came in at 10.43. The historical ROIC vs WACC comparison of Medpace Holdings is shown below:
In summary, Medpace Holdings (NAS:MEDP, 30-year Financials) stock shows every sign of being 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.
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