MarketAxess Holdings Inc (MKTX, Financial) has been making waves in the financial market with a daily gain of 4.16% and an Earnings Per Share (EPS) of 6.71. However, it has suffered a 3-month loss of 18.42%. This raises the question: is the stock significantly undervalued? In this article, we will delve into a detailed analysis of MarketAxess Holdings' valuation and financial strength. So, if you're considering investing in MarketAxess Holdings, continue reading to make an informed decision.
A Brief Overview of MarketAxess Holdings Inc (MKTX, Financial)
Founded in 2000, MarketAxess Holdings is a leading electronic fixed-income trading platform that connects broker/dealers and institutional investors. The company primarily focuses on credit-based fixed-income securities with its main trading products being U.S. investment-grade and high-yield bonds, Eurobonds, and Emerging Market corporate debt. In recent years, the company has expanded more aggressively into Treasuries and municipal bonds with the acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021, respectively. MarketAxess also provides pre- and post-trade services with its acquisition of Regulatory Reporting Hub from Deutsche Börse Group in 2020 adding to its product offerings.
Understanding the GF Value of MarketAxess Holdings (MKTX, Financial)
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
The stock of MarketAxess Holdings gives every indication of being significantly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 213.28 per share, MarketAxess Holdings stock gives every indication of being significantly undervalued.
Because MarketAxess Holdings is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength of MarketAxess Holdings
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. MarketAxess Holdings has a cash-to-debt ratio of 5.21, which ranks better than 59.1% of 753 companies in the Capital Markets industry. Based on this, GuruFocus ranks MarketAxess Holdings's financial strength as 9 out of 10, suggesting strong balance sheet.
Profitability and Growth of MarketAxess Holdings
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. MarketAxess Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $733 million and Earnings Per Share (EPS) of $6.71. Its operating margin is 44.35%, which ranks better than 80.59% of 644 companies in the Capital Markets industry. Overall, the profitability of MarketAxess Holdings is ranked 10 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of MarketAxess Holdings is 12.3%, which ranks better than 60.56% of 677 companies in the Capital Markets industry. The 3-year average EBITDA growth is 12.2%, which ranks worse than 50.85% of 468 companies in the Capital Markets industry.
ROIC vs WACC of MarketAxess Holdings
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, MarketAxess Holdings's return on invested capital is 31.56, and its cost of capital is 10.56.
Conclusion
Overall, MarketAxess Holdings (MKTX, Financial) stock gives every indication of being significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 50.85% of 468 companies in the Capital Markets industry. To learn more about MarketAxess Holdings stock, you can check out its 30-Year Financials here.
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