For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ While a well-funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Tradeweb Markets (NASDAQ:TW). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Tradeweb Markets with the means to add long-term value to shareholders.
Check out our latest analysis for Tradeweb Markets
Tradeweb Markets’ Earnings Per Share Are Growing
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Impressively, Tradeweb Markets has grown EPS by 25% per year, compounded, in the last three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. It’s noted that Tradeweb Markets’ revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Tradeweb Markets maintained stable EBIT margins over the last year, all while growing revenue 14% to US$1.2b. That’s a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Tradeweb Markets.
Are Tradeweb Markets Insiders Aligned With All Shareholders?
Since Tradeweb Markets has a market capitalization of US$17b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact that they have invested in the company. Indeed, they hold US$13m worth of its stock. That’s a lot of money, and no small incentive to work hard. Despite being just 0.08% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Are Tradeweb Markets Worth Keeping An Eye On?
You can’t deny that Tradeweb Markets has grown its earnings per share at a very impressive rate. That’s attractive. With EPS growth rates like that, it’s hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. The growth and insider confidence is looked upon well and so it’s worthwhile to investigate further with a view to discern the stock’s true value. Of course, profit growth is one thing but it’s even better if Tradeweb Markets is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.
There’s always the possibility of doing well buying stocks that aren’t growing earnings and don’t have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
What are the risks and opportunities for Tradeweb Markets?
Tradeweb Markets Inc. builds and operates electronic marketplaces in the Americas, Europe, the Middle East, Africa, Asia Pacific, and internationally.Show more
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Earnings are forecast to grow 14.29% per year
Earnings have grown 24.5% per year over the past 5 years
No risks detected for TW from our risks checks.
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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 into account 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.