Last November, I wrote about Nymex Holdings'
In business for more than 134 years, Nymex has a hammerlock on listed energy and options contracts, with a global market share exceeding 60%. Unfortunately, it's premium-priced, with an enterprise value-to-revenue ratio of 21. Admittedly, other exchanges also trade at nosebleed valuations, including InterContinental Exchange
To put things in perspective, these valuations even make some tech highfliers look affordable. Google's
Nymex's small float of 7,475,000 shares provides a key point of leverage for its valuation. Many liquid hedge funds need little firepower to buy a big chunk of that float and move Nymex's stock. However, that float may expand, since the Nymex plans a follow-on offering. It's unclear how many shares the company will sell, but the overall offering could be worth more than $1 billion.
Remember that some traders are loading up on their short positions in Nymex, betting that its price will fall, with their total amount topping 4 million shares. While this is not a guarantee that Nymex's stock price will collapse, it definitely suggests that traders are bearish. So are Wall Street analysts; in a rare move, not one of them gives Nymex a "buy" recommendation.
It's a high-stakes game of chicken, with traders hoping to make serious money on upcoming trigger events like Nymex's quarterly earnings and the follow-on offering. While the drama should be exciting to watch, it makes Nymex the wrong kind of stock for long-term Foolish investors.
Options for further Foolishness: