Location: TMFPencils's CAPS Blog
MarketAxess (MKTX) seems to be doing a terrific job capitalizing on a niche by providing an electronic trading platform for fixed-income securities (such as corporate bonds). The company’s electronic trading platform serves as a tool for institutional investors to participate more efficiently in the world of corporate bonds and other fixed-income instruments.
I imagine that bonds and other fixed-income/credit instruments will increasingly be bought and sold purely through electronic trading platforms just like equity investments. The company’s first-mover advantage, experienced leadership team, and proven track record make me all the more confident in the long-term prospects of MarketAxess.
Here are a few other notable reasons I think MarketAxess appears poised to grow and outperform the S&P 500 over the long haul:
** Sales have grown at an average annual rate of 13.04% over the past four years to $238.73 million in fiscal 2013.
** The company’s profit margin increased from 19.44% in fiscal 2010 to 31.84% in fiscal 2013, helping earnings more than double over that time period to $76.02 million in 2013.
** The company is free cash flow positive, having produced $67.6 million in free cash flow in 2013. This solid free cash flow generation has helped the company build an arsenal of $130.04 million in cash with no debt.
** Richard McVey helped start MarketAxess in 2000 and continues to serve as chairman and CEO today.
** MarketAxess has a growing presence in the Americas, Europe, and the Asia-Pacific region. The company estimates that it has 13.4% market share of high grade bond trades in the U.S.
A lot of the company’s success depends on the long-term trends when it comes to trading bonds. I don’t think corporate debt is going away -- high grade corporate debt outstanding has increased more than 60% since 2008 -- and MarketAxess has the cash and experienced leadership to continue to capture market share over time. The fact that margins have also steadily increased is a great thing to see.
I don’t know if this will be a real money investment for me, but I will likely rate the stock an outperform on CAPS and follow the company’s progress over time. From my research, this seems to be a solid business with the necessary resources to capitalize on a promising future.