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3 Reasons Growth Investors Will Love Medpace (MEDP)

·3 min read

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.

In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.

However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects, makes it pretty easy to find cutting-edge growth stocks.

Our proprietary system currently recommends Medpace (MEDP) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.

Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

Here are three of the most important factors that make the stock of this provider of outsourced clinical development services a great growth pick right now.

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. And for growth investors, double-digit earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Medpace is 31.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 27.7% this year, crushing the industry average, which calls for EPS growth of 4.4%.

Impressive Asset Utilization Ratio

Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- is often overlooked by investors, but it is an important indicator in growth investing. This metric shows how efficiently a firm is utilizing its assets to generate sales.

Right now, Medpace has an S/TA ratio of 0.87, which means that the company gets $0.87 in sales for each dollar in assets. Comparing this to the industry average of 0.56, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Medpace is well positioned from a sales growth perspective too. The company's sales are expected to grow 23.3% this year versus the industry average of 6.1%.

Promising Earnings Estimate Revisions

Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

There have been upward revisions in current-year earnings estimates for Medpace. The Zacks Consensus Estimate for the current year has surged 4.7% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Medpace a Zacks Rank #2 stock, it has earned itself a Growth Score of A based on a number of factors, including the ones discussed above.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that Medpace is a potential outperformer and a solid choice for growth investors.


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