MarketAxess Holdings, Inc. (NASDAQ:MKTX)

CAPS Rating: 5 out of 5

The Company operates as a platform for electronic trading of corporate bonds and certain other types of fixed-income securities.

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Member Avatar RKC (< 20) Submitted: 11/1/2014 2:04:45 PM : Outperform Start Price: $64.53 MKTX Score: -2.73

IN HARD TIMES & DOWN TURNS IN THE MARKET, INVESTORS TURN TO BONDS

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Member Avatar TMFPencils (99.80) Submitted: 6/5/2014 10:26:24 AM : Outperform Start Price: $51.00 MKTX Score: +18.98

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. McVey owns 1.15 million shares -- more than 3% of all shares outstanding -- which is nice to see.

** 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.

From my research, this seems to be a solid business with the necessary resources to capitalize on a promising future. The stock currently trades at a P/E just under 25, and typically has bottomed out around a P/E of 22.5 over the past several years. Short-term valuation metrics aside, MarketAxess is a proven business with extensive opportunities moving forward. Outperform.

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Member Avatar TMFTypeoh (80.63) Submitted: 8/22/2013 10:35:12 PM : Outperform Start Price: $52.45 MKTX Score: -1.52

Winner. SImple as that.

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Member Avatar rknapton (< 20) Submitted: 8/22/2013 4:27:22 PM : Outperform Start Price: $52.45 MKTX Score: -1.52

Long. Electronic trading. Pricey at 29x ttm, 27x fye earnings, but last quarters revenues grew 34% and earnings at 53%. Has beat earnings estimates past 4 quarters and analysts have been bumping up future estimates.

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Member Avatar TMFOpie (95.19) Submitted: 8/22/2013 10:14:28 AM : Outperform Start Price: $51.96 MKTX Score: -1.02

Building a platform to help bond investors buy and sell bond positions more effectively. Business has been on a tear recently pushing the earnings multiple a bit higher but I still believe in the next 3-5 years this company will be worth much more than $52 per share based on potential growth rates and adoption.

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Member Avatar TMFHumbleServant (95.63) Submitted: 2/13/2013 3:33:28 PM : Outperform Start Price: $37.60 MKTX Score: +34.70

The electronic platform trades all sorts of fixed income securities. Plenty of growth ahead of it and those rising returns on invested capital are nice to see, too.

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Member Avatar whitehead1 (< 20) Submitted: 9/10/2012 9:27:44 PM : Outperform Start Price: $27.23 MKTX Score: +91.63

MKTX is a dominant player in its market and it has a great management.

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Member Avatar steveadl (50.43) Submitted: 6/16/2011 5:51:49 AM : Outperform Start Price: $20.61 MKTX Score: +148.46

I like

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Member Avatar crazyipo (< 20) Submitted: 11/19/2006 2:45:00 AM : Outperform Start Price: $12.72 MKTX Score: +347.06

exchange consolidation

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Member Avatar jfjf88 (72.46) Submitted: 8/28/2006 7:16:30 PM : Outperform Start Price: $8.58 MKTX Score: +577.52

MKTX has the potential to become the Archipelago of bonds. There is a tremendous growth opportunity for the bond exchanges for two reasons. First, the market should return to the fixed-income asset class as investors' risk amnesia clears. Second, as more fixed incomes fall to electronic trading, volumes should skyrocket. The inventory of highly automated U.S. Treasuries turns over every eight days; the inventory of corporate bonds turns over once a year. MarketAxess has a good business and technology design, but governance needs to become more shareholder-oriented.

There may be further upside. As the NYSE moves away from domination by specialist interests, it could acquire MarketAxess. NYSE CEO John Thain has spoken publicly about creating a retail-oriented market for bonds. Investors would have access to real-time prices on company debt, and the ability to place orders online. The MarketAxess platform offers Archipelago-like electronic trading abilities in fixed income, available for less than a third of the near billion paid for Archipelago. Acquiring MarketAxess would make NYSE a true securities exchange, not just a stock exchange.

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