We came across a bearish thesis on MarketAxess Holdings Inc. (MKTX) on Long-Term Pick’s Substack by Dan. In this article, we will summarize the bears’ thesis on MKTX. MarketAxess Holdings Inc. (MKTX)’s share was trading at $267.33 as of Nov 18th. MKTX’s trailing and forward P/E were 36.17 and 33.33 respectively according to Yahoo Finance.
A close-up of a computer monitor, showing the interface of a financial trading platform.
MarketAxess reported strong financial results for the third quarter, with revenue of $270 million, a 20% increase from the previous year. This growth was driven primarily by a 20% rise in commission revenue to $180 million, along with a solid performance from information services and post-trade services, which grew by 10% and 6%, respectively. Trading volume reached 254 billion, up 41%, with notable growth in emerging markets—Latin America saw a 51% increase, and Asia-Pacific grew by 30%.
Diluted earnings per share (EPS) rose 30% to $1.19, reflecting effective expense management. Operating expenses increased by 14% to $120 million, partly due to higher variable costs driven by increased trading activity. Free cash flow was $310 million, a 4% increase over the previous quarter, and the company repurchased 66,000 shares at a cost of $15 million.
Positive highlights included a strategic partnership with S&P Global to enhance their fixed-income data offerings, as well as a record trade count for MarketAxess’s Open Trading liquidity pool, which grew 27% year-over-year. However, there were some challenges. The company faced a decline in its U.S. high-grade market share, primarily due to lower portfolio trading and a shift toward large block trading. It also struggled with fee capture as U.S. high-yield activity decreased, and its efforts to catch up with competitors in portfolio trading, particularly in Europe and emerging markets, remain ongoing.
With a current price of $264.98, MarketAxess appears overvalued against a base-case target price of $200.68. This reflects ongoing pressures in its core U.S. markets, operational inefficiencies, and a lack of meaningful advancements in critical growth areas such as portfolio and block trading. Without substantial strategic improvements, the stock’s current valuation leaves limited room for upside, making further downside likely.
MarketAxess Holdings Inc. (MKTX) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held MKTX at the end of the second quarter which was 30 in the previous quarter. While we acknowledge the risk and potential of MKTX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MKTX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.