Why Investors Shouldn't Be Surprised By Tradeweb Markets Inc.'s (NASDAQ:TW) P/E

With a price-to-earnings (or "P/E") ratio of 56.8x Tradeweb Markets Inc. (NASDAQ:TW) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Tradeweb Markets as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Tradeweb Markets

Want the full picture on analyst estimates for the company? Then our free report on Tradeweb Markets will help you uncover what's on the horizon.

How Is Tradeweb Markets' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. The latest three year period has also seen an excellent 84% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 16% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we can see why Tradeweb Markets is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Tradeweb Markets' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Tradeweb Markets' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Tradeweb Markets with six simple checks will allow you to discover any risks that could be an issue.

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

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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.