MarketAxess (NASDAQ:MKTX) is a little known business -- less than 100 players on Motley Fool CAPS have rated the stock -- but this is a company well worth watching.

MarketAxess provides an electronic trading platform for fixed-income securities (such as corporate bonds and other credit instruments), helping institutional investors participate more efficiently in the global credit market. In other words, it offers a platform for institutions (and, perhaps someday, individual investors) to invest in bonds and other fixed-income securities around the world.

Here are five reasons to add MarketAxess to your watchlist and keep an eye on the company's progress in the months and years ahead. 

1. A growing market 
Total high grade corporate debt outstanding has increased more than 60% since 2008. MarketAxess' platform helps connect institutional investors with the secondary debt market, and as of the first quarter of 2014 approximately 13.4% of high grade bond trades in the U.S. were done through MarketAxess. 

In addition to the Americas, MarketAxess is also expanding in Europe and the Asia-Pacific region. In the first quarter of 2014, trade volumes from MarketAxess' European clients increased 36% year-over-year. Europe now accounts for 20% of the company's overall revenue.

Credit trading is a highly regulated niche market, providing a competitive moat for MarketAxess as the company opens investors to a liquid worldwide credit market. Since 2008, MarketAxess has gained approval to extend its electronic trading platform to Quebec, Brazil, Singapore, and Hong Kong.

2. Consistent sales growth... and (probably) more to come
MarketAxess has grown sales at an average annual rate of 13.04% over the past four years to $238.73 million in fiscal 2013. This growth seems poised to continue, considering the rising issuance of corporate debt and MarketAxess' expanding global credit trading platform.

3. Impressive earnings and margin growth
MarketAxess grew its profit margin from 19.44% in fiscal 2010 to 31.84% in fiscal 2013, helping the company's earnings more than double over that time frame to $76.02 million in 2013.

4. Experienced leadership 
Richard McVey helped found MarketAxess in 2000 and continues to serve as chairman and CEO today. McVey owns 1.15 million shares of the business -- more than 3% of all shares outstanding -- which helps give me assurance that his interests are aligned with shareholders. CFO Antonio DeLise has been with MarketAxess since 2006, and chief information officer Nicholas Themelis has served the company since 2004. 

This experienced and innovative leadership team has helped MarketAxess grow to serve more than 1,400 institutional investing firms around the world today. 

5. Strong balance sheet 
MarketAxess is free cash flow positive, having generated $67.6 million in free cash flow in 2013. This solid free cash flow production has helped the company build an arsenal of $130.04 million in cash with no debt whatsoever. With MarketAxess churning out consistent free cash flow, the company has managed to maintain this strong balance sheet while beginning to issue a dividend in 2009. (The annual dividend has grown from $0.28 per share in 2010 to $0.58 per share over the past four quarters.) 

Foolish bottom line 
MarketAxess is still a somewhat small business in the public sphere with a market cap of $2.1 billion as of this writing. The stock trades at a P/E ratio of 27, which is not obscene for a small-cap business producing steady cash flow while growing on a global scale. As you can see in the chart below, strong earnings growth has helped the P/E ratio stay relatively steady even with the stock doubling over the past two years. 

MKTX Chart

The stock will be volatile in the short-term, but I think patient investors will enjoy market-beating returns over the long haul with MarketAxess. I haven't made a real-money investment in the company (yet), but I did rate the stock an outperform on CAPS.

Do you think MarketAxess will outperform the S&P 500 in the coming years? Head over to CAPS and make your pitch!

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David Kretzmann has no position in any stocks mentioned. You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_Kretzmann. Learn more about David's Pencils IRA Project at The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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