On May 11, MarketAxess Holdings (MKTX -0.45%) closed at $252 per share, plummeting to its lowest point in more than three years. The last time the stock for this fintech company closed lower than that was April 4, 2019, when it ended the trading day at $248 per share.
Even during the depths of the market crash in March 2020, MarketAxess Holdings hovered around $300 per share. Post the pandemic market crash, it skyrocketed to over $600 per share on Nov. 5, 2020, and opened a few days later on Nov. 9 at $604 per share.
But in the 18 months since hitting those highs, the stock has dropped about 57%. Year to date, MarketAxess Holdings was down about 36.6%. Has it hit bottom? Let's take a look at why this stock hasn't been this cheap since 2019 and if it's worth a look at this low valuation.
MarketAxess sees record trading volume for Treasury bonds
MarketAxess Holdings provides fixed-income securities trading on its electronic platform for institutional investors and dealers. It is one of the leading players in a relatively small pool of competitors within the fixed income space.
Since the vast majority of MarketAxess Holdings' revenue comes from fees assessed every time a trade is made on its platform, it thrives when there is a lot of trading activity. The opposite is true during times of low volatility.
MarketAxess actually had a good first quarter. It posted $186 million in revenue, the second-highest quarterly total ever. The highest was the first quarter of 2021 when it did $195 million in revenue, so it was down year over year by about 5%. However, the company beat earnings estimates, driven by record trading volumes, particularly from U.S. Treasury bonds.
Overall, the average daily volume (ADV) of trading was $37.5 billion, up 22% year over year. U.S. Treasury/government bonds ADV was $25.5 billion, up 39%, while credit ADV was $12 billion, down 3% year over year, with high-yield and high-grade volumes down 12% and 7%, respectively.
But the stock price dropped precipitously, about 25%, from the end of the first quarter to its price of $252 at the close of the market on May 11, despite the fact that trading volume remained high. The company reported $38.1 billion in ADV in April, up 56% year over year, with the ADV of U.S. Treasury/government bonds up 90% to $25.9 billion.
Why MarketAxess is in a good position to bounce back
MarketAxess Holdings got caught up in the market sell-off in April and May and fell with the market. But the fact is, the current market environment of rising interest rates and widening credit spreads bodes well for the company, as Chairman and CEO Richard McVey said on the first-quarter earnings call on April 20:
In April, we're starting to see spread levels move out. I think as people contemplate a higher probability of recession risk down the road, you're going to see more volatility in spreads. I think you're clearly going to see sustained volatility in rates and when that price dispersion grows, every period in history, the open trading transaction fee advantages that we have drive our market share higher.
Credit spreads are the difference between the yields of credit, or corporate bonds, and Treasury/government bonds. When spreads widen, it is a sign of weaker economy, as people flock to the safety of Treasuries and away from riskier, higher-yielding corporate bonds. Also, it would lead to a move from stocks into bonds. Both of these factors create increased volatility in the bond market, which is good for a company that runs one of the foremost bond trading platforms.
So, while MarketAxess Holdings stock is at a three-year low, don't expect it to stay there. It should start moving over the next few months.