What happened
Shares of the fixed-income trading fintech platform MarketAxess Holdings (MKTX 2.64%) fell 18.7% in the first half of the year according to data provided by S&P Global Market Intelligence. MarketAxess has seen volatility fall in the fixed-income space, causing trading activity to slow down and analysts to reduce the price target for the company.
So what
MarketAxess had a tremendous year last year because of elevated volatility and trading activity in fixed-income assets -- its specialty. Last year, the company saw revenue grow 35%, while diluted earnings per share (EPS) increased 45%.
The solid performance carried over into the first quarter of this year, with the company posting record trading activity. Trading volume was stellar, with trading on the MarketAxess Open Trading platform up 20% from the year before and international client volume up 18%. Revenue grew by 16% to $195 million in the quarter, while diluted EPS increased 7.7% to $2.11.
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Rising volatility benefits MarketAxess as it means increased trading on its platform and thus increased fee revenue. However, volatility across markets, including fixed-income, has declined steadily in the past year.
The company recently announced June trading volume of $567 billion and total trading volume in the second quarter of $1.56 trillion. This second-quarter volume was down 17% from $1.88 trillion in the first quarter and down 8.3% from $1.7 trillion in the same quarter last year.
Now what
Raymond James analyst Patrick O'Shaughnessy said Q2 volumes disappointed amid lower volatility. The analyst noted "industry wide volumes and the company's market share continued to face headwinds in a lower volatility backdrop."
O'Shaughnessy still has an outperform rating on the stock but cut his price target from $580 to $530, which still represents a 16.5% upside from its closing price on Thursday. The 10 analysts covering the stock have an average price target of around $498, a 9.5% upside from here.
While MarketAxess has fallen this year due to lower trading volumes, it shouldn't come as a surprise to investors. Fixed-income market volatility was expected to come down from the sky-high levels seen at the beginning of the COVID-19 pandemic. This doesn't change the fact that MarketAxess has been a great stock for long-term investors and has crushed the S&P 500 for over a decade now, with returns of 1,950% versus 306%. And while the company is down on the year, it continues to add to its market share and maintain powerful network effects that make it hard to overtake.
