MarketAxess Holdings Inc (MKTX, Financial) saw a daily loss of -1.86 % and a 3-month loss of -19.34%. Despite these figures, the company's Earnings Per Share (EPS) stands at 6.71. This leaves investors with a critical question: Is the stock significantly undervalued? This article aims to answer this question through an in-depth valuation analysis. Read on to discover valuable insights into MarketAxess Holdings (MKTX)'s financial health and future prospects.
Company Introduction
Founded in 2000, MarketAxess Holdings Inc (MKTX, Financial) is a leading electronic fixed-income trading platform that connects broker/dealers and institutional investors. The company's primary focus is on credit-based fixed-income securities, including U.S. investment-grade and high-yield bonds, Eurobonds, and Emerging Market corporate debt. The company has expanded into Treasuries and municipal bonds with the acquisitions of LiquidityEdge and MuniBrokers in 2019 and 2021, respectively. MarketAxess Holdings 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.
The company's current stock price stands at $211.95, while its GF Value, an estimation of fair value, is $397.14. This suggests that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Based on these factors, MarketAxess Holdings (MKTX, Financial) appears to be significantly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's 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 stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. With a market cap of $8 billion, MarketAxess Holdings' stock appears to be 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
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. MarketAxess Holdings has a cash-to-debt ratio of 5.21, which ranks better than 59.15% of 754 companies in the Capital Markets industry. The overall financial strength of MarketAxess Holdings is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. MarketAxess Holdings has been profitable for 10 of 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 80.47% of 645 companies in the Capital Markets industry. Overall, GuruFocus ranks the profitability of MarketAxess Holdings at 10 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. MarketAxess Holdings's 3-year average revenue growth rate is better than 60.35% of 681 companies in the Capital Markets industry. However, MarketAxess Holdings's 3-year average EBITDA growth rate is 12.2%, which ranks worse than 50.54% of 467 companies in the Capital Markets industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, MarketAxess Holdings's return on invested capital is 31.56, and its cost of capital is 10.34.
Conclusion
In conclusion, the stock of MarketAxess Holdings (MKTX, Financial) appears to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 50.54% of 467 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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