I think this one has been raised on the board before. MKTX is an electronic bond-trading platform. I have a one-tranche, cautious investment based on valuation difficulties. The basic multiples are extremely high (or low, FCFY) but equally the fundamentals (e.g. OM and ROIC) are extraordinary. I presume the company would be seriously affected by the bond market decline many predict. But equally, if interest rates go up, that raises demand for bonds? Comments welcome.
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Strelna,
Since you asked…
The basic multiples are extremely high
How high? Well much higher than even SHOP’s if you’re looking at their PS ratio ~19.7). However, they are quite profitable, so we should look at PE too (~58). Also quite high and the real issue is, how are they going to grow? 22% top line growth ain’t bad, but I’m not sure it merits a PE of 58. Plus it’s only supposed to be 15% this year. What about margin growth? Well with net margin is already in the mid 30’s, it’s hard to imagine that can go much higher very quickly. Of course they can grow into the valuation at this pace, but it will take years. And at these nosebleed prices they seem very vulnerable to any kind of guidance miss or minor setback. Simply not a slam dunk in my book.
Basically IMHO this company doesn’t really have levers left to pull at this point. They’re not growing fast enough to interest me at their current valuation.
Bear
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Basically IMHO this company doesn’t really have levers left to pull at this point. They’re not growing fast enough to interest me at their current valuation.
I’m embarrassed to admit that I owned a while ago and not only sold but lost touch with the entire story (why? I don’t know - stupid is most likely explanation), but the old narrative was that corporate bond trading was entirely a paper affair and therefore stuck in the stone ages and there was a huge, just huge, runway for growth if this ever transitioned to electronic. Flipping thru the investor presentation bears this out - on slide 13 they mention that their TRACE share is still just 14%. Plus, the way exchanges work, each incremental trade is incredibly profitable, so as you add more volume profits can go up rapidly. Anybody who has owned a CME or ICE can see this.
I need to revisit the story. Course, as noted, it ain’t cheap…
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I share your caution but I am holding because of the phenomenal OM and FCFM. It is interesting the short position is negligible.