MarketAxess Holdings Inc.'s (NASDAQ:MKTX) Business Is Yet to Catch Up With Its Share Price

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may consider MarketAxess Holdings Inc. (NASDAQ:MKTX) as a stock to avoid entirely with its 33.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

The recently shrinking earnings for MarketAxess Holdings have been in line with the market. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for MarketAxess Holdings

Keen to find out how analysts think MarketAxess Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

MarketAxess Holdings' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.1%. This means it has also seen a slide in earnings over the longer-term as EPS is down 17% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 11% each year over the next three years. With the market predicted to deliver 10% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that MarketAxess Holdings is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MarketAxess Holdings currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for MarketAxess Holdings with six simple checks on some of these key factors.

You might be able to find a better investment than MarketAxess Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com