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Medidata Solutions, Inc. (NASDAQ:MDSO) is considered a high-growth stock, but its last closing price of $75.45 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s look into this by assessing MDSO’s expected growth over the next few years.
What are the future expectations?
The excitement around Medidata Solutions’s growth potential is not unfounded. The consensus forecast from 10 analysts is extremely bullish with earnings per share estimated to surge from current levels of $0.893 to $1.477 over the next three years. This results in an annual growth rate of 17%, on average, which indicates an exceedlingly positive future in the near term.
Is MDSO’s share price justified by its earnings growth?
The stock is trading at a lofty price-to-earnings (PE) ratio of 84.47x, telling us that Medidata Solutions is overvalued based on current earnings compared to the Healthcare Services industry average of 57.91x , and overvalued compared to the US market average ratio of 17.23x .
We already know that MDSO appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as Medidata Solutions, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 84.47x and expected year-on-year earnings growth of 17% give Medidata Solutions a quite high PEG ratio of 4.98x. This tells us that when we include its growth in our analysis Medidata Solutions’s stock can be considered overvalued , based on the fundamentals.
What this means for you:
MDSO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are MDSO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has MDSO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of MDSO’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.