MEDP

Medpace

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-$24.35 -12.72%
Medpace and the development of new drugs
This is one of my favorite ideas, not only because the numbers are good, but also because it is one of those companies that does a good for humanity. This company helps in the developing of new pharmaceuticals and has special expertise in cancer treatment.

Founded in 1992 and having a Market Cap of nearly $5B USD, Medpace is a Contract Research Organization (CRO). CROs provide outsourced clinical development services for the biotech, pharmaceutical and medical device industries.

Why would that be necessary?

New drugs must undergo extensive preclinical and clinical testing and regulatory review to verify safety and efficacy. As you can guess, this is not cheap at all, in fact, it is estimated that the cost to get a new drug approved is around $2.5 billion dollars and takes about 10 years on average.

This is challenging for small companies that want to test their pharma products, and that is where companies like Medpace come in, which can do this work more efficiently, to successfully pass the development process from Phase I to Phase IV. This is mainly due to two factors: Medpace's existing professional infrastructure and the know-how to perform these therapeutic tests.

Revenues are generated through fees for the provision of these services detailed in contracts. The duration of the contract can range in length from a few months to several years and the price are generally based on a fixed fee. Stable and predictable income.

Market Overview

The CRO industry remains highly fragmented, with several smaller providers and a small number of full-service firms with global capabilities, like Laboratory Corporation of America, Syneos Health or IQVIA Holdings.

This is because there are significant barriers to entry, including the cost and expertise required to develop therapeutic areas, the infrastructure to support large global programs, or the expertise required to prepare regulatory filings in numerous jurisdictions.

Oncology - An opportunity

30% of revenues came from oncology tests. This is a large market, since 6,504 (29%) of the 22,684 drugs in process during 2020 are focused on treating cancer and it is expected that by 2026 more than $300B dollars will be allocated to Oncology (the study and treatment of tumors), maintaining double-digit growth only in this segment.

Key Ratios

  • 32% CAGR growth in revenues and 30% FCF growth
  • High Gross Margins of 61%
  • FCF ROCE of 21% and solid FCF margins of 20%
  • CapEx represents only 2.5% of Sales
  • Net Debt/EBITDA of almost 0

An Asset Light company with no debt, growing both revs and FCF while generates high returns on investments.

Management

August James Troendle is the founder and is still in the company as CEO. He has extensive knowledge of the CRO and biopharmaceutical industries. He still owns 21% of the company, which is more than 1,500 times his annual salary. Skin in the game.
Also insiders have been buying stock in the last 6 months.

Capital allocation is focused on continuing to grow the business organically, since they don't pay dividends and do not make acquisitions. That's how they got able to get that 20% Returns on Capital Employed.
Also, they bought back -3.5% in outstanding shares during this YTD.

Valuation

Okay, business seems good BUT: Is it cheap?
Well, in my base case scenario, revenue will grow by a modest 15% CAGR over the next 5 years, maintaining FCF margins of 22%.

That's a FCF per share of almost $18 in 2027. With a multiple of 20x EV/FCF would result in a target price of $360 USD. A CAGR return of 19% from current prices ($150 USD).

Final Thoughts

There are more details to mention, but there's a word count limit and I think you can already get an idea of ​​why $MEDP is one of my highest-conviction ideas.

Feel free to leave in the comments your thoughts about the company!
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Steve Matt's avatar
$18.3m follower assets
$MEDP $SHOP $ETSY $TYL Earnings: What I'm Looking For
Medpace Holdings, Inc. ($MEDP) - Reporting earnings Monday (7/25) morning

Here's what I'm looking for:

  • Revenue is up 27% on a TTM basis but gross, operating, and net margins are all down TTM. We're laaping tough late-2020 comps but I'd like to see margins begin rebounding.
  • Same with FCF. Q1'22 was their worst Q1 since 2019. FCF/S is 18.2% TTM vs. 24.6% over the previous TTM.
  • Did they use any of their active $190MM share repurchase program to buyback any shares?
  • Book-to-bill took a sharp drop in Q1 compared to 2021 but was on par with 2019. Where does Q2 fall?
  • Backlog, baby. It's increased >25% YoY for 5 straight quarters against easy comps. Give me more of that backlog growth.

Current position:
Total cost basis: 38th highest in my portfolio
Current portfolio market value ranking: 26th
Time since first buy: 0.44 years
Number of purchases since initial position: 1
Annualized return: (14.5%) - Beating both of my benchmarks
Annualized $SPY return: (30.2%)
Annualized $QQQ return: (28.8%)

Shopify Inc. ($SHOP) - Reporting earnings Wednesday (7/27) morning

Everyone is watching Shopify so I'll keep it brief. Here's what I'm looking for:

  • Looking to see if management gives an update on the Deliverr acquisition.
  • What is the revenue growth number?
  • FCF turn back positive?
  • Watching MRR, GMV, GPV, and take rate all very closely.

Current position:
Total cost basis: 67th highest in my portfolio
Current portfolio market value ranking: 5th
Time since first buy: 5.12 years
Number of purchases since initial position: 3
Annualized return: 32.2% - Beating both of my benchmarks
Annualized $SPY return: 8.0%
Annualized $QQQ return: 15.6%

Etsy, Inc. ($ETSY) - Reporting earnings Wednesday (7/27) afternoon

Here's what I'm looking for:

  • As with most of the companies I own, FCF. It took a big dive in Q1 for Etsy and the TTM FCF/S is down so 22.4% from 38.5% the 4Qs prior.

  • Seller count and take rate. Did the fee hike have an impact on active sellers on the platform? Did take rate improve regardless?
  • Habitual buyers count.
  • GMS per active buyer has been down YoY for 4 consecutive quarters. As usual, we have tough comps to lap but my thesis can't stay intact if this keeps dropping. It needs to bottom out above pre-COVID levels (it was $28.44 in 2019, $39.61 in 2020, and $36.13 in 2021. Q1'22 was $34.20).

Current position:
Total cost basis: 21st highest in my portfolio
Current portfolio market value ranking: 56th
Time since first buy: 1.24 years
Number of purchases since initial position: 2
Annualized return: (45.8%) - Trailing both of my benchmarks
Annualized $SPY return: (7.6%)
Annualized $QQQ return: (8.4%)

Tyler Technologies, Inc. ($TYL) - Reporting earnings Wednesday (7/27) afternoon

This is a new position in my 401k. I'll be adding to it monthly going forward. Here's what I'm looking for:

  • Backlog has seen double-digit % growth the past 3 quarters after 3 Qs of single-digit growth. Want to see the double-digit trend continue.

  • Recurring revenue is a big reason I bought into Tyler Technologies. In 2017 when they first started reporting recurring and non-recurring revenue, recurring accounted for 63% of their revenue. That has steadily risen to 65%, 67%, 73%, and now 79% in 2021. That percent continuing to rise is a big part of my thesis and so I'll be watching it closely each quarter.
  • Can we get another FY revenue guidance increase?
  • As with the other companies I've mentioned in this post, FCF/S is down on a TTM basis vs. the previous TTM (16.9% vs. 30.2%) and was just 9% in Q1. Would like to see a rebound.

Current position:
Total cost basis: 105th highest in my portfolio
Current portfolio market value ranking: 92nd
Time since first buy: 0.14 years
Number of purchases since initial position: 3
Annualized return: 200.4% - Beating both of my benchmarks
Annualized $SPY return: (28.6%)
Annualized $QQQ return: 60.0%
Recent Buy Ratings: MEDP, NVR, DPZ; Here's Why
As the market continues to go down, there are more and more long-term opportunities opening up for buy-and-hold investors. Hands down, one of our favorite opportunities right now is INMD stock. $INMD reports earnings tomorrow, so we will most likely write about it very soon. It is currently one of our biggest positions.

However, our newest buy ratings are on the following stocks: $MEDP, $NVR, and $DPZ. These are not our core holdings, though. We only have relatively small positions here in MEDP and NVR, for now, and no position in DPZ yet.

Note: This is not professional financial advice.
Most of these Buy ratings are in downtrends, meaning that the chances for more short-term downside are high. The ratings are not based on technical analysis. Again, they are meant for long-term investors.

Here they are, these are free articles to read:
  1. **Medpace Stock: 43% Pullback; Time to Buy? (MEDP)
**

Medpace Holdings is a contract research organization (CRO). It essentially helps biotech/medical companies do clinical trials for new drugs, etc. It earns revenue from contracts. It is reasonably valued after a large pullback, very profitable, and growing consistently.


  1. Why NVR is a Top Homebuilder Stock

NVR, Inc. (NVR) constructs and sells real estate properties, such as single-family detached homes, townhomes, and condos. It also offers Mortgage Banking for its homebuyers.
We like the stock because it has a superb track record (highly profitable, growing) and is relatively undervalued compared to its past valuations.

Historically, buying big drops has worked on this stock. Check the chart above.


  1. Domino’s Pizza Stock: Focus on the Long Term (DPZ)

Pizza chain Domino’s has seen some inflation headwinds recently and will continue seeing them for the rest of the year. Also, the chart doesn’t look too pretty as it’s breaking down from a long-term uptrend.

However, DPZ has navigated through hard times before and can eventually bounce back. The company is still highly profitable and growing. This is definitely one for the patient investor.


Thanks for checking this out! If there are any stocks/topics you’d like us to cover, hit us up!
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Alberto Wallis's avatar
$22.4m follower assets
Upcoming Earnings Calendar (Feb 14th - 18th)
Hey guys! Here's the upcoming earnings calendar! Three of my holdings report next week.

  • $ABNB - The stock has held up pretty well during the market sell-off. The valuation is still high, but with re-openings the company could see a big boost this year.
  • $TTD - They've said Apple IDFA is a non-issue, so their growth should be great. A key indicator of ad spend.
  • $ROKU - The stock is down almost 64% from ATH, but the fundamentals keep improving. I expect great results from the company, with ARPU growing and margins expanding.

If you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

MON:


TUE:


WED:


THU:


FRI:
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