Being a socially responsible company is not a zero-sum game, where the more socially responsible you are, the worse your financial performance is, and vice versa. Profits don't go out the window when you treat the environment better. And similarly, socially responsible investing is not a zero-sum game, where the more socially responsible you are, the worse your portfolio's performance is. So go ahead and consider investing in some socially responsible companies -- like Medidata Solutions Inc. (NASDAQ:MDSO)
In general, socially responsible investments can be quite competitive with their counterparts. A 2011 study from Harvard Business School, for example, looked at 18 years of data and found "strong evidence that firms emphasizing [socially responsible] practices significantly outperform similar firms that do not, as measured by both financial and stock market returns." Meanwhile, a 2014 study by the folks at asset-management firm New Amsterdam Partners found "a positive linkage between stocks with higher ESG (Environmental, Social and Governance) ratings and superior returns and reduced price volatility."
At CSR.hub.com, Medidata Solutions earns above-average marks in all graded socially responsibility categories, from governance to environment. The company, like many, has an ethics code, but its CEO words his support of it especially strongly: "The Company's reputation will continue to be based upon how we conduct our business and how we treat our colleagues, customers, suppliers and stockholders. Please do not take this responsibility lightly."
Why invest in Medidata Solutions Inc.?
Based in New York City, and with a market capitalization of $2.3 billion, Medidata Solutions is, in its own words, "the leading global provider of cloud-based solutions for clinical research in life sciences, transforming clinical development through its advanced applications and intelligent data analytics." It aims to boost productivity and quality in clinical testing by offering services such as study design, planning, execution, management, and reporting, and its global customers include "over 90% of the top 25 global pharmaceutical companies; innovative biotech, diagnostic and device firms; leading academic medical centers; and contract research organizations." In other words, per my colleague Todd Campbell, it's "helping drug developers improve how they conduct clinical trials."
Medidata is one of the companies helping the heathcare industry operate better electronically, by offering technology to make clinical trials faster and more reliable, and thus potentially speeding up the time it takes to develop new drugs. It recently reported its third-quarter results, with record revenue 21% higher than year-ago levels. Its subscription services are especially valuable since they're recurring, and they rose 23% in the quarter to record levels. The company noted that, "7 out of the top 10 best selling drugs in the United States in 2013 were developed using Medidata technology." The company's customer base grew by 7% to 463 and its rate of growth is growing. Medidata has grown its top line by more than 20% for nine quarters in a row now.
There's a lot to like about Medidata Solutions beyond its current growth rate, such as its new offerings and goal of getting more customers to buy multiple products. It's not a stock for the faint of heart, though, with a forward-looking P/E ratio near 50, shrinking earnings, and a rising share count. Some of that is due to it ramping up its research and development spending, its gross margins are growing, and it's free cash flow positive.
Medidata Solutions's stock has fallen about 18% over the past year, suggesting a buying opportunity to some. Over the past five years, stock growth has average 42% annually. Investors who can tolerate risk may want to take a closer look at this intriguing company. Risk averse folks might want to add it to a watch list, in case there's a pullback in price or the company simply becomes more compelling over time.