Medpace (MEDP)

Clinical research company Medpace Holdings (NASDAQ:MEDP) announced better-than-expected revenue in Q3 CY2025, with sales up 23.7% year on year to $659.9 million. The company’s full-year revenue guidance of $2.51 billion at the midpoint came in 1.6% above analysts’ estimates. Its GAAP profit of $3.86 per share was 10% above analysts’ consensus estimates.

Company Overview

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.

Companies specializing in drug development inputs and services play a crucial role in the pharmaceutical and biotechnology value chain. Essential support for drug discovery, preclinical testing, and manufacturing means stable demand, as pharmaceutical companies often outsource non-core functions with medium to long-term contracts. However, the business model faces high capital requirements, customer concentration, and vulnerability to shifts in biopharma R&D budgets or regulatory frameworks. Looking ahead, the industry will likely enjoy tailwinds such as increasing investment in biologics, cell and gene therapies, and advancements in precision medicine, which drive demand for sophisticated tools and services. There is a growing trend of outsourcing in drug development for nimbleness and cost efficiency, which benefits the industry. On the flip side, potential headwinds include pricing pressures as efforts to contain healthcare costs are always top of mind. An evolving regulatory backdrop could also slow innovation or client activity.

Medpace competes with larger clinical research organizations including IQVIA Holdings (NYSE:IQV), ICON plc (NASDAQ:ICLR), Fortrea (NASDAQ:FTRE), and the clinical research division of Thermo Fisher Scientific (NYSE:TMO) which acquired PPD, Inc.

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 $2.36 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.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Medpace’s sales grew at an excellent 21.4% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Medpace’s annualized revenue growth of 15.1% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Medpace’s organic revenue averaged 15.2% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Medpace reported robust year-on-year revenue growth of 23.7%, and its $659.9 million of revenue topped Wall Street estimates by 2.7%.

Looking ahead, sell-side analysts expect revenue to grow 12.1% over the next 12 months, a slight deceleration versus the last two years. Despite the slowdown, this projection is healthy and suggests the market sees success for its products and services.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Medpace has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 19.6%.

Analyzing the trend in its profitability, Medpace’s operating margin rose by 3.3 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements. These data points are very encouraging and show momentum is on its side.

In Q3, Medpace generated an operating margin profit margin of 21.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Medpace’s EPS grew at an astounding 34.2% compounded annual growth rate over the last five years, higher than its 21.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Medpace’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Medpace’s operating margin was flat this quarter but expanded by 3.3 percentage points over the last five years. On top of that, its share count shrank by 23.7%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Medpace reported EPS of $3.86, up from $3.01 in the same quarter last year. This print beat analysts’ estimates by 10%. Over the next 12 months, Wall Street expects Medpace’s full-year EPS of $14.30 to grow 3.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Medpace has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 24.7% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Medpace’s margin expanded by 3.9 percentage points during that time. This is encouraging because it gives the company more optionality.

Medpace’s free cash flow clocked in at $235.5 million in Q3, equivalent to a 35.7% margin. This result was good as its margin was 9.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Medpace’s five-year average ROIC was 47.9%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Medpace is a profitable, well-capitalized company with $285.4 million of cash and $119.1 million of debt on its balance sheet. This $166.3 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Medpace blew past analysts’ organic revenue expectations this quarter, leading to reported revenue and EPS beats. We were also glad its full-year revenue guidance was lifted and full-year EPS guidance outperformed Wall Street’s estimates. Zooming out, we think this quarter featured a lot of important positives. The stock traded up 18.5% to $648.98 immediately after reporting.

Updated: December 4, 2025 at 11:19 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Medpace.

There is a lot to like about Medpace. For starters, its revenue growth was impressive over the last five years. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, and its stellar ROIC suggests it has been a well-run company historically.

Medpace’s P/E ratio based on the next 12 months is 36.5x. Some good news is baked into the stock given its multiple, but we’ll happily own Medpace as its fundamentals really stand out. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany relatively high valuations.

Wall Street analysts have a consensus one-year price target of $538.58 on the company (compared to the current share price of $540.96).