Why Medpace Popped 13% This Week

Shares of Medpace (NASDAQ: MEDP) zoomed 13% higher this week as of 11:49 a.m. ET on Friday, according to data from S&P Global Market Intelligence. The clinical research organization that helps pharmaceutical companies perform outsourced research and trial testing saw strong growth in its latest quarter and a nice bump to its backlog, leading investors to be optimistic about the stock's future.

Strong bookings and backlog

Clinical trials can be wildly expensive for upstart drugmakers to run, which has led to a growth industry of outsourcing to scaled expert industry players like Medpace.

In 2023 and 2024, biopharmaceutical processing and clinical trials went through a downturn after the COVID-19 pandemic ended. Now, the industry is beginning to rebound, and you can see it in Medpace's financial figures. Revenue grew 24% year over year last quarter to $660 million, with net income of $111 million.

More importantly, Medpace's book-to-bill ratio, which is a ratio of new contract wins divided by existing orders fulfilled in a period, was 1.2x in the third quarter. A book-to-bill ratio above 1 means that a company is growing its orders faster than it can fulfill demand, growing its backlog.

Medpace's impressive book-to-bill ratio of 1.2 shows the recovery of the clinical trial industry is in full swing, which led the company's stock to jump after reporting these earnings figures. It now has a backlog of $3 billion.

Image source: Getty Images.

Is Medpace Holdings stock a buy?

A disruptor in the biopharmaceutical space, Medpace Holdings has been an impressive growth story over the last few years. Revenue is up 1,000% since 2016, when the business went public, meaning it has more than 10xed its revenue in less than a decade.

Earlier this year, Medpace stock traded at a cheap price, with a price-to-earnings ratio (P/E) of just 24. Today, after the stock price has zoomed up over 100% in less than a year, its P/E ratio is 44.5. Investors who buy today will likely still do well over the long term, but this is a nosebleed P/E ratio, even when considering Medpace's steady growth trajectory.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Medpace. The Motley Fool has a disclosure policy.