Capital markets are the lifeblood of the financial system. They help facilitate raising capital, trading, and investing and ensure the smooth operation of equity and debt markets. Companies in this industry include investment banks and brokerage firms.
Tradeweb Markets (TW -0.30%) is one company in the industry worthy of consideration. The professional trading platform has grabbed market share en route to its stellar growth over recent years. If you're looking to invest in capital market stocks, Tradeweb is a top choice. Here's why.
Tradeweb's commitment to clients has it grabbing market share
Formed in 1996, Tradeweb Markets could be considered one of the earliest fintechs. At that time, the professional trading platform brought U.S. Treasuries trading into the technological age. It caters to Wall Street's largest participants, facilitating trading across various assets for hedge funds, central banks, market makers, and other institutions.
Tradeweb is an intriguing investment opportunity because it keeps gaining market share. For example, U.S. Treasuries are among the most popular assets on its trading platform. Since 2017, Tradeweb's market share (based on total volume) has grown from 9.4% to 18.8%. While it hasn't grown as quickly in this area in recent years, it continues to make gains in credit markets, including U.S. investment grade and U.S. high-yield debt, where its market share has tripled over the past five years.
Part of Tradeweb's success is listening closely to customers to provide them with the best experience possible. For example, a couple of years ago, it acquired Nasdaq's fixed-income trading platform, improving clients' access to Treasuries trading while reducing their trading costs. It also aims to protect clients' trade information, which prevents other market participants from front-running orders.
This commitment to clients is why Tradeweb's partners include BlackRock,Freddie Mac), Cboe, and S&P Global Market Intelligence. These partnerships are a crucial part of its reach and growing market share.
Image source: Getty Images.
Its recent earnings show continuing growth
Tradeweb's recent third-quarter earnings showed the strength of its trading platform. In the quarter, the company's transaction fees of $263 million were up nearly 16% from last year. Its revenue growth outpaced expenses, and its net income surged 43% from a year earlier.
Tradeweb benefited from active markets around interest rate products and money markets as interest rates hit their highest levels in decades. Its average daily volume across assets was up nearly 30%.
A word on its valuation
Tradeweb trades at an expensive valuation, at more than 55 times earnings and 15 times sales. Its high price tag is due to the company's stellar growth. Analysts expect earnings per share to grow 51% this year, followed by 14% next year, and in the double-digit percentage range for the next several years.
Data source: YCharts
A high price tag should be expected for a company growing as quickly as Tradeweb. As long as it continues its solid growth, investors shouldn't be overly concerned with its premium valuation. However, a slowdown in future growth expectations could send the stock price tumbling -- something investors should always keep in mind when investing in high-growth stocks.
Tradeweb should benefit from these tailwinds
Tradeweb is well positioned to benefit from expanding government and corporate debt. This is because more debt results in higher trading volume through its growing platform. Its efforts to digitize the trading process in markets is ongoing, and it continues to expand its capabilities into credit and equity markets. The company also sits on a solid foundation, with more than $1.5 billion in cash and cash equivalents.
Tradeweb has benefited from active markets during the past year and should continue to enjoy tailwinds from increased trading activity. It has done an excellent job of catering to customers and grabbing market share, making it a top capital markets stock for investors today.
