Does MarketAxess Holdings Inc.’s (NASDAQ:MKTX) Stock Price Account For Its Growth?

MarketAxess Holdings Inc. (NASDAQ:MKTX) closed yesterday at $366.21, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing MKTX’s expected growth over the next few years.

Check out our latest analysis for MarketAxess Holdings

Where’s the growth?

Investors in MarketAxess Holdings have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 9 analysts are buoyant with earnings forecasted to rise significantly from today’s level of $5.001 to $7.287 over the next three years. This results in an annual growth rate of 14%, on average, which indicates a solid future in the near term.

Is MKTX’s share price justified by its earnings growth?

MarketAxess Holdings is trading at price-to-earnings (PE) ratio of 73.23x, this also tells us the stock is overvalued based on current earnings compared to the Capital Markets industry average of 39.51x , and overvalued compared to the US market average ratio of 17.26x .

NasdaqGS:MKTX Price Estimation Relative to Market, August 18th 2019
NasdaqGS:MKTX Price Estimation Relative to Market, August 18th 2019

We understand MKTX seems to be overvalued based on its current earnings, compared to its industry peers. However, since MarketAxess Holdings is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 73.23x and expected year-on-year earnings growth of 14% give MarketAxess Holdings a punchy PEG ratio of 5.25x. This means that, when we account for MarketAxess Holdings’s growth, the stock can be viewed as somewhat overvalued , based on fundamental analysis.

What this means for you:

MKTX’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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are MKTX’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.
  2. Past Track Record: Has MKTX 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 MKTX’s historicals for more clarity.
  3. 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 editorial-team@simplywallst.com. 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. Thank you for reading.