Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Nymex Hits a Gusher

NymexHoldings (NYSE: NMX  ) , a top commodities exchange, may be 134 years old, but the company looked like a dot-com last week. On its IPO, the stock price skyrocketed from $59 to $132.99 (the stock was as high as $152). No doubt, there are good reasons for the excitement; that is, the company is growing at a rapid clip and exchange IPOs have done quite well over the past few years. However, the fact remains that Nymex is selling at frothy levels.

Basically, Nymex (which stands for the New York Mercantile Exchange) dominates the market for listed energy and options contracts (over 60% of the global market). And the firm has a broad platform: a physical trading floor, clearing and settlement services, and an electronic trading system. It even licenses market data, to boot.

For the first nine months of 2006, there were 175.9 million contracts traded with the Nymex, which is up from 160.1 million traded in the same period a year ago. During this time, revenues increased from $253 million to $382 million, while profits increased from $50 million to $112 million.

Then again, Nymex's management team has definitely been savvy. For example, its ownership of a clearinghouse has been a key differentiator. Actually, all futures exchanges require a clearinghouse that settles transactions, making sure payments are made and obligations are met. As a result, this increases the confidence of traders to conduct business on an exchange.

By owning a clearinghouse and having visibility in what traders are doing, Nymex has an easier time launching new products. Also, the process of integrating new products is more seamless since the Nymex controls the clearing infrastructure.

In fact, since 2005, the firm has introduced 151 new products. Some of these products cover new categories, such as different blends of crude oil, sulfur dioxide, coal, and nitrous oxide. There are also new products that help traders better manage risks, which are fairly complex and have exotic names like basis swaps, swing swaps, and so on.

Nymex has also entered into a variety of alliances. There is its deal with the Chicago Mercantile Exchange Holdings (NYSE: CME  ) , which allows for improved electronic trading. What's more, there have been deals to enter new markets, such as Russia, Mexico, and Japan.

But, of course, Nymex faces some major risks. First, there is serious competition, such as from the InterContinental Exchange (NYSE: ICE  ) , which went public last year.

However, perhaps the biggest risk is its dependence on the energy markets. In fact, with lower oil prices, there has already been some weakness. And, if this continues for several quarters, it could mean lackluster results -- especially when compared to the stellar performance in 2006.

Besides, Nymex's market cap is a nose-bleed $12 billion, which is about 12 times trailing revenues. And with only 6.5 million shares outstanding, it does not take much to swing the stock price. In other words, this is really a stock for traders, not long-term investors.

For further Foolishness:

Small caps.Large caps. Fool CAPS! The Motley Fool's new investor-intelligence community rates thousands of stocks to help you improve your own stock selections. Join today for a fun new way to research stocks.

Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 41 out of 13,432 in CAPS.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 517485, ~/Articles/ArticleHandler.aspx, 10/24/2016 4:57:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
ICE $266.33 Up +1.30 +0.49%
Intercontinental E… CAPS Rating: *****