Subdued Growth No Barrier To MarketAxess Holdings Inc. (NASDAQ:MKTX) With Shares Advancing 26%

Despite an already strong run, MarketAxess Holdings Inc. (NASDAQ:MKTX) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 4.2% isn't as impressive.

After such a large jump in price, MarketAxess Holdings' price-to-earnings (or "P/E") ratio of 44.6x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, MarketAxess Holdings has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for MarketAxess Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MarketAxess Holdings.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as MarketAxess Holdings' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 12% drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the twelve analysts watching the company. With the market predicted to deliver 13% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's curious that MarketAxess Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From MarketAxess Holdings' P/E?

MarketAxess Holdings' P/E is flying high just like its stock has during the last month. 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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for MarketAxess Holdings with six simple checks.

If these risks are making you reconsider your opinion on MarketAxess Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.