Analysts Rate Tradeweb Markets (TW) as a Buy, but Is It Overvalued?

By Scott Lee • Sunday, January 19 15:13 • Permanent Link

With an average analyst rating of buy, Tradeweb Markets is clearly an analyst favorite. But the analysts could be wrong. Is TW overvalued at today's price of $129.02? Let's take a closer look at the fundamentals to find out.

Tradeweb Markets has a P/E ratio of 62.0 based on its 12 month trailing earnings per share of $2.08. Considering its future earnings estimates of $3.32 per share, the stock's forward P/E ratio is 38.9. In comparison, the average P/E ratio of the Finance sector is 20.04 and the average P/E ratio of the S&P 500 is 29.3.

We can also compare the ratio of Tradeweb Markets's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. TW has a P/B ratio of 4.82, with any figure close to or below one indicating a potentially undervalued company.

A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Tradeweb Markets's quick ratio is 3.015. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.

The final element of our analysis will touch on Tradeweb Markets's ability to generate cash for the benefit of its shareholders or for reinvesting in the business. For this, we look at the company's levered free cash flow, which is the sum of all incoming and outgoing cash flows, including the servicing of current debt and liabilities. Tradeweb Markets has a free cash flow of $727.56 Million, which it uses to pay its shareholders a 0.3% dividend.

At Market Inference, we will keep monitoring Tradeweb Markets to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.