Insights

Tradeweb Stock Has Dropped 16% Since Meeting Earnings Estimates: What Gives?

The current market environment has been a tricky one for investors. Stocks that are growing year over year and meeting earnings estimates are getting beaten down regardless of how well the business is doing. One such stock is Tradeweb Markets (NASDAQ: TW).
The trading platform for the big players on Wall Street saw solid earnings growth from last year and met analysts’ expectations in its first-quarter earnings report. Despite this, the stock has dropped 16% since announcing its earnings on April 28.
Image source: Getty Images.

Digitizing markets since 1996
Tradeweb Markets operates a trading platform and primarily serves institutional investors like hedge funds, central banks, and wholesale traders such as market makers. The company has been around since 1996 but has been publicly traded for only the past three years.
What E*Trade or TD Ameritrade did for individual investors, Tradeweb is doing for institutional investors. Specifically, Tradeweb has brought certain markets into the digital era. The company has worked to digitize markets that have traditionally executed trades non-electronically (think phone calls) — such as the U.S. Treasuries market — where 35% to 40% of trading is still done this way.
Image source: Tradeweb Markets.

Tradeweb has done a stellar job of taking market share over the years. Since 2016, the company has increased its share of the U.S. Treasuries market from 7.5% to 19.6%. It has also taken a growing share of credit and equity markets. As a result, the company’s revenue has grown at a nearly 16% compound annual growth rate since 2016.
Image source: Tradeweb Markets.

Tradeweb put up solid first-quarter earnings
Tradeweb put up stellar numbers in the first quarter, with revenue rising 14% from a year ago to $311 million. It also saw net income increase 22% to $97 million and put up earnings per share (EPS) of $0.48 — right in line with analysts’ estimates. Nevertheless, Tradeweb stock plunged in the days after the earnings announcement, despite meeting expectations.
To be sure, the stock market as a whole has put up a lackluster year. Investors’ primary concerns are inflationary pressures and the Federal Reserve raising interest rates to slow it down. So far this year, the Fed has increased interest rates by 0.75%, and the market expects the Fed to raise interest rates to 2.75% to 3% by year-end. As a result, the S&P 500 has stumbled, while stocks with high valuations have taken an even bigger hit.
VUG data by YCharts.

Companies that grow quickly tend to trade at higher multiples because investors have lofty expectations for future earnings growth. However, growth stocks tend to be the first to take a hit when interest rates rise. Growth stocks have longer-term growth expectations and become more heavily discounted when interest rates rise — leading to sharper sell-offs compared with value stocks.
A stellar company you can buy at a cheaper valuation today
Tradeweb is a rapidly growing company currently trading at a price-to-earnings ratio (P/E) of about 54. This is the cheapest the stock has been since early 2020 when the market initially sold off in response to the emerging pandemic.
TW data by YCharts.

Tradeweb has traded at a high valuation for a while now. So, even though earnings were in line with estimates and showed strong growth year over year, the stock couldn’t avoid the gravity of the broader market dragging everything else down.
It’s been a challenging environment for investors this year. However, it’s crucial to maintain a long-term outlook for your investments. Market sell-offs can create opportunities for investors to buy good companies at lower prices.
Investors should be aware that the P/E ratio is still high, and the stock could continue to get beaten up as market volatility persists. Despite this, Tradeweb remains a solid company that has continuously taken market share since going public — making it a solid stock to add today and build over time.
Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy. –

The current market environment has been a tricky one for investors. Stocks that are growing year over year and meeting earnings estimates are getting beaten down regardless of how well the business is doing. One such stock is Tradeweb Markets (NASDAQ: TW).

The trading platform for the big players on Wall Street saw solid earnings growth from last year and met analysts’ expectations in its first-quarter earnings report. Despite this, the stock has dropped 16% since announcing its earnings on April 28.

Image source: Getty Images.

Digitizing markets since 1996

Tradeweb Markets operates a trading platform and primarily serves institutional investors like hedge funds, central banks, and wholesale traders such as market makers. The company has been around since 1996 but has been publicly traded for only the past three years.

What E*Trade or TD Ameritrade did for individual investors, Tradeweb is doing for institutional investors. Specifically, Tradeweb has brought certain markets into the digital era. The company has worked to digitize markets that have traditionally executed trades non-electronically (think phone calls) — such as the U.S. Treasuries market — where 35% to 40% of trading is still done this way.

Image source: Tradeweb Markets.

Tradeweb has done a stellar job of taking market share over the years. Since 2016, the company has increased its share of the U.S. Treasuries market from 7.5% to 19.6%. It has also taken a growing share of credit and equity markets. As a result, the company’s revenue has grown at a nearly 16% compound annual growth rate since 2016.

Image source: Tradeweb Markets.

Tradeweb put up solid first-quarter earnings

Tradeweb put up stellar numbers in the first quarter, with revenue rising 14% from a year ago to $311 million. It also saw net income increase 22% to $97 million and put up earnings per share (EPS) of $0.48 — right in line with analysts’ estimates. Nevertheless, Tradeweb stock plunged in the days after the earnings announcement, despite meeting expectations.

To be sure, the stock market as a whole has put up a lackluster year. Investors’ primary concerns are inflationary pressures and the Federal Reserve raising interest rates to slow it down. So far this year, the Fed has increased interest rates by 0.75%, and the market expects the Fed to raise interest rates to 2.75% to 3% by year-end. As a result, the S&P 500 has stumbled, while stocks with high valuations have taken an even bigger hit.

VUG data by YCharts.

Companies that grow quickly tend to trade at higher multiples because investors have lofty expectations for future earnings growth. However, growth stocks tend to be the first to take a hit when interest rates rise. Growth stocks have longer-term growth expectations and become more heavily discounted when interest rates rise — leading to sharper sell-offs compared with value stocks.

A stellar company you can buy at a cheaper valuation today

Tradeweb is a rapidly growing company currently trading at a price-to-earnings ratio (P/E) of about 54. This is the cheapest the stock has been since early 2020 when the market initially sold off in response to the emerging pandemic.

TW data by YCharts.

Tradeweb has traded at a high valuation for a while now. So, even though earnings were in line with estimates and showed strong growth year over year, the stock couldn’t avoid the gravity of the broader market dragging everything else down.

It’s been a challenging environment for investors this year. However, it’s crucial to maintain a long-term outlook for your investments. Market sell-offs can create opportunities for investors to buy good companies at lower prices.

Investors should be aware that the P/E ratio is still high, and the stock could continue to get beaten up as market volatility persists. Despite this, Tradeweb remains a solid company that has continuously taken market share since going public — making it a solid stock to add today and build over time.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Growth ETF. The Motley Fool has a disclosure policy.

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