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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in MarketAxess Holdings (NASDAQ:MKTX). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is MarketAxess Holdings Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, MarketAxess Holdings has grown EPS by 23% per year, compound, in the last three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that MarketAxess Holdings is growing revenues, and EBIT margins improved by 3.6 percentage points to 53%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for MarketAxess Holdings?
Are MarketAxess Holdings Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$21b company like MarketAxess Holdings. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$592m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!
It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like MarketAxess Holdings, the median CEO pay is around US$11m.
The CEO of MarketAxess Holdings only received US$3.2m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.
Is MarketAxess Holdings Worth Keeping An Eye On?
You can't deny that MarketAxess Holdings has grown its earnings per share at a very impressive rate. That's attractive. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. Each to their own, but I think all this makes MarketAxess Holdings look rather interesting indeed. Even so, be aware that MarketAxess Holdings is showing 1 warning sign in our investment analysis , you should know about...
Although MarketAxess Holdings certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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