The stock market is one of the few places where demand is lower when prices get cheaper. That’s because investors often fear that if prices fall, they will only fall more. That is a legitimate concern. Almost no one has demonstrated the ability to consistently time the market. However, sell-offs can offer great opportunities for long-term investors.
Buying stocks of proven companies when the market turns their prospects worse is one of the easiest ways to build wealth. Provided they recover. Market axis (NASDAQ: MKTX) could offer this possibility now. It was one of the best-performing stocks of the 2010s, rising 3.065% over the decade. Recently, fears of a slowdown in growth have sent the stock down 23% from its all-time high. Investors who can see through the dark clouds should take advantage of this and add stocks to their portfolio.
Image source: Getty Images.
A strong position in a huge market
MarketAxess is the largest electronic trading platform in the $ 128 trillion global bond market. The company has more than 1,800 active institutional investor and trading firms among its customers. The platform enables trading in four product categories: US high-grade and high-yield, emerging markets and Eurobonds. For the time being, the company is particularly dependent on one category. In the first quarter of 2021, high-quality US bonds accounted for almost half of the transaction volume of $ 244 billion.
Management estimates the average daily volume for its addressable credit markets and US Treasury markets to be $ 79 billion and $ 589 billion, respectively. It estimates this translates into an approximately $ 5 billion annual revenue opportunity. Over the next decade, the company expects that opportunity to grow to $ 8.5 billion. Revenue for the past 12 months was only $ 716 million. That leaves plenty of room for revenue growth and even more for profit growth as the company scales.
A rare combination of financial characteristics
The company offers a combination of growth and profitability that is not easy to find, especially with dividend payers. Sales have grown steadily and are close to 17% on a five- and 10-year average. Profitability has also risen steadily over the past ten years. This means that a higher percentage of sales will drop on the bottom line as more trading is done on the platform. The gross margin and operating margin have each increased by 1,000 basis points (10 percentage points) since 2011.
Management has also shown that it is familiar with capital allocation. The return on invested capital – net operating profit after tax divided by debt plus equity – has risen from a respectable 17% in 2011 to 31% in recent years. That’s better than Facebook, alphabet, and Amazon.
In addition, it has been paying a dividend since 2009 and has increased it continuously every year since then. What started as a quarterly payout of $ 0.07 per share has increased nearly ten-fold to $ 0.66 per share. The share is currently yielding around 0.6%.
A reasonable rating
Few investors would consider MarketAxess stocks cheap. As I said, they haven’t been so cheap for a long time. Despite 90 times earnings and 35 times sales over the past two years, those odds are now near their lowest levels in this 24 month period.
MKTX PE ratio data from YCharts
This type of multiple contraction is typically associated with a slowdown in growth, and that’s the case here. Analysts expect the company to grow sales and earnings by just 11% and 1% respectively this year. Both numbers are well below the five-year averages of 18% and 25%, respectively. The slowdown is unlikely to be permanent. The two biggest growth drivers – municipal bonds and international expansion – outperformed overall business in the last quarter. Municipal bond growth was 75%, while sales in the international segment grew 18%.
MarketAxess is a leader in electronic fixed income trading, a market that is still in the early stages of technology adoption. Unlike most other stocks, it offers three times the growth, profitability, and return. Add in multiples of sales and earnings that are near the March 2020 lows and the stock is a good candidate for future market-leading returns. These are the main reasons why I will expand my position as soon as trading rules allow.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.
source https://thedailytradingnews.com/heres-the-next-stock-im-going-to-buy/
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