Here’s why this Fintech is a no-brainer growth stock
Bear markets can be a painful experience for investors. After all, no one likes to see their portfolio lose value. However, long-term investors know that bear markets offer opportunities to buy excellent companies at discounted prices.
The chances of buying into the bottom of a bear market are slim, so you want to gradually 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 customers with their service.
A company that takes market share and achieves impressive growth is Tradeweb Markets (TW 1.05%), the trading platform for Wall Street’s most prominent investors. Here is 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 US government bonds or corporate debt, they turn to a trading platform like Tradeweb Markets. Tradeweb helps hedge funds, central banks, market makers and other institutions trade on its digital platform, which was introduced in 1996.
The company’s first tradable product was US Treasuries, a market that used to rely on telephone orders to execute trades. Since then, it has expanded to offer digital platforms for European bonds, corporate debt, equities, money markets and derivatives related to these assets.
Its growth is hard to ignore. Since 2004, Tradeweb’s average daily volume, or total volume of all products traded on the platform, has grown by 14% annually, and revenue has increased by 13% annually.
Tradeweb pleases its customers with this simple secret
What makes Tradeweb stand out is its commitment to providing its customers with the best trading experience possible.
For example, it acquired Nasdaqits fixed income trading platform for $190 million last year. The acquisition improves clients’ access to trade government bonds while reducing the cost of trading, which can add up when you’re doing billions of dollars in volume daily.
Another way Tradeweb stands up for its customers is by protecting their trading information from other market players. Information leakage can allow sophisticated traders to front-run customers’ trades, making it more expensive to execute large block trades. By protecting this trading data, Tradeweb saves customers money and gains their trust – and business – as a result.
Tradeweb competes with Nasdaq, MarketAxess Holdings, Intercontinental exchange, CME Group, and Bloomberg. The company needs to keep customers happy and coming back for more with such intense competition, which is exactly what they are doing.
Taking market share
Tradeweb snatches market share from competitors. In 2016, it had a share of the US financial market of 7.5%. This year, the market share is 19.6% – almost a threefold increase. Treasuries is not the only area where the company is expanding. Since 2015, Tradeweb’s average daily volume has increased several times the total market across the various assets, as you can see below.
The business also had a tailwind from increased trading activity this year. According to Fitch Ratings, global interest rates rose at the fastest pace in more than 30 years as central banks try to bring down inflation. Rapidly rising interest rates result in more volatility in products such as US Treasuries and corporate bonds. Tradeweb is reaping the rewards as the volume on the platform increases.
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. Growth is consistent across all products, including US 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 downsides for Tradeweb in the last year is the high valuation. Into 2022, the stock was trading at a price-to-earnings (P/E) ratio of over 90 and a one-year P/E ratio of 55.
Since the start of the year, Tradeweb’s share price has fallen 48% as broad weakness in the stock market has dragged down shares with high valuations. The sale allows you to buy the stock at a cheaper valuation, with a P/E ratio of 42.8 and a one-year P/E ratio of 25.
The valuation is high, considering that competitors such as CME Group and Intercontinental Exchange trade at a one-year forward P/E of 21 and 15.2 respectively. However, Tradeweb’s exceptional growth is why investors are willing to pay a premium for this stock relative to its competitors.
Courtney Carlsen has no position in any of the aforementioned shares. The Motley Fool has positions in and recommends MarketAxess Holdings. The Motley Fool recommends CME Group, Intercontinental Exchange and Nasdaq. The Motley Fool has a disclosure policy.
