Bear markets can be a painful experience for investors. After all, no one likes seeing their portfolio lose value. However, long-term investors know bear markets offer opportunities to buy excellent companies at discounted prices.
The chances of buying in at the bottom of a bear market are tiny, so you gradually want to build positions over time in stocks you know have what it takes to recover and excel. You can do this by focusing on quality companies with impressive growth that also delight their customers with their service.
One company grabbing market share and achieving impressive growth is Tradeweb Markets (TW -0.44%), the trading platform for Wall Street's most prominent investors. Here's Tradeweb's secret to staggering growth.
Image source: Getty Images.
How Tradeweb brought Wall Street into the digital age
When the big players on Wall Street trade things like U.S. Treasuries or corporate debt, they turn to a trading platform like Tradeweb Markets. Tradeweb helps hedge funds, central banks, market makers, and other institutions make trades on its digital platform, which was introduced in 1996.
The company's first tradable product was U.S. Treasuries, a market that used to rely on telephone orders to conduct trades. Since then, it has expanded to offer digital platforms for European bonds, corporate debt, equities, money markets, and derivatives related to those assets.
Its growth is hard to ignore. Since 2004, Tradeweb's average daily volume, or total volume of all the products traded on its platform, has grown by 14% annually, and revenue has increased by 13% annually.
Tradeweb delights its customers with this simple secret
What makes Tradeweb stand out is its commitment to providing its clients with the best trading experience possible.
For example, it acquired Nasdaq's fixed-income trading platform for $190 million last year. The acquisition improves clients' access to trading Treasuries while also reducing the costs of trading, which can add up when you do billions of dollars in volume daily.
Another way Tradeweb stands up for its clients is by protecting their trading information from other market participants. Information leakage can allow sophisticated traders to front-run their clients' trades, making it more expensive to complete big block trades. By protecting this trading data, Tradeweb saves clients money and gains their trust -- and business -- as a result.
Tradeweb competes with Nasdaq, MarketAxess Holdings, Intercontinental Exchange, CME Group, and Bloomberg. The company must keep customers satisfied and returning for more with such intense competition, which is precisely what they're doing.
Taking market share
Tradeweb is snatching market share away from the competition. In 2016, it had a 7.5% slice of the U.S. Treasury market. This year, its market share is 19.6% -- nearly a threefold increase. Treasuries aren't the only area where the company is expanding. Since 2015, Tradeweb's average daily volume has increased multiple times that of the total market across its different assets, which you can see below.
Image source: Tradeweb Markets.
Its business also enjoyed tailwinds from increased trading activity this year. According to Fitch Ratings, global interest rates rose at the fastest pace in over 30 years as central banks try to bring down inflation. Rapidly rising interest rates result in more volatility in products like U.S. Treasuries and corporate bonds. Tradeweb reaps the rewards as volume on its platform proliferates.
Through the first eight months of this year, Tradeweb's average daily volume is over $1 trillion per day -- up 15% from the same period last year. The growth is consistent across all its products, including U.S. high-yield debt, exchange-traded funds (ETFs), money markets, and derivatives.
The stock still trades at a premium but became much cheaper in 2022
One of the drawbacks for Tradeweb in the past year is its lofty valuation. Coming into 2022, the stock traded at a price-to-earnings ratio (P/E) of over 90 and a one-year forward P/E ratio of 55.
Since the start of the year, Tradeweb's stock price has fallen 48% as broad weakness in the stock market has dragged down stocks with high valuations. The sell-off allows you to buy the stock at a cheaper valuation, with its P/E ratio at 42.8 and its one-year forward P/E ratio at 25.
The valuation is high, considering competitors like CME Group and Intercontinental Exchange trade at one-year forward P/Es of 21 and 15.2, respectively. However, Tradeweb's exceptional growth is why investors are willing to pay a premium for this stock over its competitors.
