Have Investors Priced In Tradeweb Markets Inc.’s (NASDAQ:TW) Growth?

Tradeweb Markets Inc. (NASDAQ:TW) is considered a high-growth stock, but its last closing price of $40.58 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Tradeweb Markets

What can we expect from TW in the future?

One reason why investors are attracted to TW is the high growth potential in the near future. Expectations from 14 analysts are extremely positive with earnings forecasted to rise significantly from today’s level of $0.616 to $0.706 over the next three years. This results in an annual growth rate of 18%, on average, which signals a market-beating outlook in the upcoming years.

Is TW’s share price justifiable by its earnings growth?

Tradeweb Markets is trading at price-to-earnings (PE) ratio of 65.84x, this also tells us the stock is overvalued based on current earnings compared to the Capital Markets industry average of 39.45x , and overvalued compared to the US market average ratio of 17.12x .

NasdaqGS:TW Price Estimation Relative to Market, September 4th 2019
NasdaqGS:TW Price Estimation Relative to Market, September 4th 2019

After looking at TW’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, to properly examine the value of a high-growth stock such as Tradeweb Markets, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 65.84x and expected year-on-year earnings growth of 18% give Tradeweb Markets a quite high PEG ratio of 3.65x. Based on this growth, Tradeweb Markets’s stock can be considered overvalued , based on fundamental analysis.

What this means for you:

TW’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 TW’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. Valuation: What is TW worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TW is currently mispriced by the market.
  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.