Shares of MarketAxess Holdings Inc. MKTX have lost 20.4% in the past three months, underperforming the industry’s decline of 3%. While CME Group Inc. CME has gained 2.5%, Cboe Global Markets, Inc. CBOE has declined 7.4% in the same time frame.

In contrast, the S&P 500 index has experienced a rise of 3% over the same period, highlighting the stark divergence in performance. The stock is currently trading below its 50-day and 200-day moving averages, signaling downward momentum.

MKTX's 3-Month Price Performance Comparison

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Given this performance, should investors still consider holding on to MarketAxess stock, or should they steer clear of it? Let us delve deeper.

What's Weighing on MKTX Stock?

This leading fixed-income electronic trading platform recently reported growth in total credit average daily trading volume for Q4 2024, but this was offset by significant declines in key segments. U.S. high-yield trading activity fell 18.7% year over year in the fourth quarter, and its market share dropped by 380 basis points. On the other hand, U.S. high-grade trading activity was up 4% year over year in the December quarter, but its market share dropped by 250 basis points. A shift toward large block trading might be causing market share to fall for MKTX. However, it has several initiatives lined up for the first quarter, which are expected to enhance its market share in the coming days.

Transaction fees per million for total credit fell by 3.8% year over year in Q4 2024 due to product mix, despite higher trading volumes in certain areas.

The persistent rise in expenses is also a concern for MKTX. Total expenses rose 8.2%, 11.8% and 11.5% year over year in 2022, 2023 and the first nine months of 2024, respectively. Management expects 2024 expenses (including the Pragma acquisition) to be near the low end of the range earlier provided, which was between $480 million and $500 million.

Is MarketAxess Stock Overvalued?

From a valuation perspective, MKTX appears relatively expensive, which may constrain short-term gains and make it less appealing than other investment opportunities. MKTX is trading at a premium compared to the industry’s average. The company's shares are currently priced at a forward price/earnings ratio of 26.62X, higher than the industry average of 22.4X.

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Other industry players like CME Group and Cboe Global Markets are priced at 21.85X and 20.81X price/earnings, respectively.

MKTX’s Growth Drivers

MarketAxess has consistently benefited from solid trading volumes, which remain the most significant driver of its revenues. The company’s top line has shown steady growth for over a decade, a noteworthy achievement. In the first nine months of 2024, commissions advanced 9% year over year, supported by an average daily trading volume of $35.8 billion.

The company leverages acquisitions and partnerships to enhance its product portfolio, explore new markets and expand its footprint in fixed-income trading. In October 2024, MarketAxess entered into a strategic data partnership with S&P Global Market Intelligence. This collaboration is designed to increase transparency and efficiency in fixed-income markets by combining S&P Global's evaluated bond pricing with MarketAxess's Composite+ (CP+) pricing tool.

Its Open Trading platform plays a pivotal role by offering price improvements to clients, reducing risks in fixed-income markets and lowering transaction costs. In the first nine months of 2024, Open Trading credit volume was $782.2 billion, which improved 10.7% from the prior-year period.

Beyond its domestic operations, MarketAxess serves a broad international clientele, with more than 1,000 active firms utilizing its platform through regulated venues in Europe, Asia and Latin America.

A robust financial position supports MarketAxess' growth initiatives. As of Sept. 30, 2024, the company’s cash and cash equivalents were $446.3 million. It generated $209 million in net cash from operations during the nine months ended Sept. 30, 2024, which advanced 8.8% from the prior-year period. Strong cash flows enable the company to invest in its business while returning value to shareholders through share buybacks and dividends.

Estimate Trend

The Zacks Consensus Estimate for MKTX’s 2024 earnings is pegged at $7.38 per share, indicating growth of 7.7% from the prior-year reported figure. The same for 2024 earnings has been revised upward in the past 60 days. The consensus mark for 2025 earnings is pegged at $8.21 per share.

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MarketAxess’ earnings outpaced estimates in the trailing four quarters, the average surprise being 4.2%.

Conclusion

While MarketAxess faces short-term challenges such as declining market share, falling transaction fees, rising expenses, its robust trading volumes, strategic partnerships and strong financial position underscore its potential for long-term growth. However, the company’s valuation is higher compared with the industry’s average. Hence, it might not be a good time to buy this stock and wait for a better entry point.

MarketAxess carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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