Yahoo Finance Why Investors Should Hold MarketAxess (MKTX) Stock for Now
MarketAxess Holdings Inc.’s MKTX solid growth in trading volumes, significant price movement for clients and record market share gains make it worth retaining in one’s portfolio. Also, its favorable growth estimates are confidence boosters for investors.
The company is a leading multi-dealer trading platform offering institutional investors access to global liquidity in products. Its main source of revenue is commissions, while information services and post-trade services form the remaining portion.
Return on Equity (ROE)
Return on equity, a measure reflecting how efficiently a company utilizes shareholders’ money, was 24.3% in the trailing 12 months, better than the industry average of 10.3%.
Zacks Rank & Price Performance
MKTX currently carries a Zacks Rank #3 (Hold). Its shares have gained 6.8% in the past year against the industry’s decline of 28.5%.
Image Source: Zacks Investment Research
Optimistic Growth Projections
The Zacks Consensus Estimate for MKTX’s 2023 earnings is pegged at $7.78 per share, indicating a 16.6% increase from the year-ago reported figure of $6.67. The same for MKTX’s 2023 sales is pegged at $809.6 million, indicating a 12.7% increase from the year-ago reported figure of $718.3 million.
The company beat earnings estimates in each of the past four quarters, the average surprise being 3.8%.
Business Tailwinds
In 2022, a significant portion of MKTX’s total revenues came from commissions, which improved 3.2% from 2021. The figures are expected to grow further in the coming days due to strong estimated market share gains and higher volumes.
MarketAxess’s electronic trading platform is a mean to provide liquidity in the secondary market for credit products. Liquidity is generated as institutional and broker-dealer clients participate in fixed-income trading. Total credit volume increased to $2.9 trillion in 2022 from $2.6 trillion in 2021. Higher trading volumes will lead to higher commission revenues in future.
The company’s Open Trading platform has a broader range of liquidity options than other traditional models with limited dealer counterparties. This attractive feature of the open trading platform resulted in a price improvement of $945 million in 2022. This will create further opportunities for MKTX to fine-tune its pricing over time.
MarketAxess has been expanding its international offerings and client base. It currently has 1,000 active client firms outside the United States, who use its Open Trading functionality to perform cross-border transactions with few regulatory hurdles. Its emerging markets trading platform is available for use in Latin America, Central and Eastern Europe and other regions, offering local currency bond trading. Its footprint in China bolsters its fixed-income trading network, giving rise to higher expected revenues in the future.
MKTX’s automation tools are critical in solving problems faced by its clients like higher ticket counts and smaller trade sizes. Its tools can help clients control their costs, while delivering efficient workflow solutions. Automated trading reached a record volume of $62 billion, which will further increase with continued strong use.
MarketAxess’s data analytics tools act as its key differentiator as it supports the trading platform and improves clients’ trading experience. It offers value-added analytics which rely on machine learning, automation etc., which will improve trading workflows. MKTX’s Composite+ pricing algorithm helps its automated trading solutions with a no-touch mechanism, working on pre-determined parameters. Moves like this will help attract and retain more traders by helping them focus on high-value-added trades by relieving them from executing smaller trades.
The company returned $193.4 million to its shareholders through dividends and share buybacks in 2022. Management also raised its quarterly dividend by 2.9%, implying that it is a good buy for an investor looking for returns in the form of dividends.
Key Concerns
There are a few factors that are impeding the stock’s growth lately.
MKTX’s operating expenses rose 8.2% in 2022 mainly due to higher employee compensation and benefits, general and administrative expenses, and technology and communication expenses. Rising costs can affect its margins.
The company’s expensive valuation poses a concern. Its forward 12-month P/E ratio of 44.85X is significantly higher than the industry average of 28.35X. Moreover, MKTX’s free cash flows declined 12.1% year over year to $260.9 million in 2022, which could affect its future operations. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Stocks to Consider
Some better-ranked stocks from the broader Finance space are Diebold Nixdorf DBD, International Money Express IMXI and PagSeguro Digital PAGS. Each of these companies sports a Zacks Rank #1 (Strong Buy) at present.You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Diebold Nixdorf's 2024 earnings indicates a 60.2% rise from the prior-year reported figure, while the same for revenues suggests 3.3% growth.
The consensus mark for DBD’s 2023 earnings has moved 18.4% north in the past 60 days.
The Zacks Consensus Estimate for International Money Express 2023 earnings indicates a 24.3% rise, while the same for revenues suggests 24% growth from the prior-year reported figures.
IMXI’s bottom line outpaced earnings estimates in each of the trailing four quarters, the average surprise being 17.1%.
PagSeguro Digital’s bottom line outpaced estimates in three of the trailing four quarters, while missing the same in one. The average earnings surprise is 33%.
The Zacks Consensus Estimate for PAGS’s 2023 sales indicates an 8.9% rise from the prior-year reported figure.
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Diebold Nixdorf, Incorporated (DBD) : Free Stock Analysis Report
MarketAxess Holdings Inc. (MKTX) : Free Stock Analysis Report
PagSeguro Digital Ltd. (PAGS) : Free Stock Analysis Report
INTERNATIONAL MONEY EXPRESS, INC. (IMXI) : Free Stock Analysis Report
