The past year has been one of the best times to look for really good stocks at low prices as the pandemic hit the market pretty hard. Those who managed to conclude several lucrative trades received tangible profits after the market bounced off pandemic lows.
More recently, after emerging from a recession, the US stock market has experienced its share of ups and downs. Stock traders have dealt with inflation, the ongoing fallout from the pandemic, and overvalued stocks (especially in the tech sector). This made it a little harder to find profitable growth stocks deals.
However, this is still a good time for value investors as value stocks performed relatively well. One of these stocks that I’m looking at right now is Virtu Financial (NASDAQ: VIRT).
Virtu thrives on volatility
Virtu Financial is known as a market maker – a company that provides liquidity to the financial markets through its high frequency trading platform. It does this through its ability to close trades quickly, making money from the bid / ask spread for each trade. Times of high volatility are good for Virtu as trading activity increases, spreads widen, and its marketing services are increasingly in demand to maintain liquidity in the markets.
It is enough to look at the volatility of the markets over the past 12-18 months in order to understand how strong this year has been for Virtu. And the numbers confirm this:
- In 2020, the company’s revenue grew by 113.5% to $ 3.24 billion;
- Virtu’s net income jumped to $ 1.1 billion (up from a loss in 2019).
By the way, the loss shown by the company in 2019 was largely due to the costs of acquiring ITG. This acquisition gives Virtu another source of income by providing investment professionals with a range of analytical tools and trading solutions. As a result, Virtu’s share price skyrocketed 54% in 2020.
In 2021, Virtu had a record first quarter as the market was still quite volatile. Compared to the first quarter of 2020, the company’s revenue has grown slightly. Market-making revenue remained at about the same level, but the company received revenue growth in the segment execution services (provision of services for the execution of transactions) by 12% year on year. In 2021, the share price has risen by about 10.8%.
Good buy for the long term
While the strong performance last year was driven by increased volatility, Virtu is a company with solid long-term prospects. There are several reasons why I consider these stocks as the next candidate for my investment portfolio:
- They are now available at a great price with a low price to earnings ratio of P / E = 5.4;
- The company’s business is quite efficient, with a return on equity (ROE) of 64% and an operating margin of 46%;
- The company has a large amount of cash on hand – about $ 6.3 billion;
- The company has an acceptable level of debt.
Another big reason I like Virtu is because it benefits from rapidly changing markets. The ease of investment provided by electronic trading platforms such as Robinhood has opened up the markets to millions of new investors. And what we saw last year is not a surge, but a long-term trend.
Here are the words of the company’s CEO Douglas Sifu from the company’s latest income statement: “While it is difficult to gauge the levels at which this activity will continue compared to the recent past, we are confident that major trends will continue with the support of Virtu and a robust market ecosystem capable of handling this level of extraordinary activity.“.
Finally, the acquisition of the ITG business provides Virtu with another source of revenue to smooth out the company’s earnings during times when markets are less volatile.
All in all, this company is one of the leaders in its industry and its shares definitely deserve the attention of investors.
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