If the market collapses, you’ll be happy to own Virtu Financial
About a year ago at this time, we started to see the market rise starting to reverse. In a month, it would become a complete crash. This was brought on, of course, by the deadly COVID-19 pandemic.
The market recovered in value, then a little, led by the technology sector. But the market remains volatile, with many high-profile stocks overvalued and the pandemic still wreaking havoc. The 2020 coronavirus crash should be a stark reminder to investors to prepare a diversified portfolio comprising stocks that can support your bottom line in the event of another stock market crash. A stock to consider owning if the market collapses again Virtu Financial (NASDAQ: VIRT).
Virtu thrives on volatility
Virtu Financial is a high frequency trading company providing liquidity to the financial markets. This is called a market maker, which means that he quotes the prices of stocks, fixed income securities, currencies, commodities and other securities on Exchanges and the profits of the difference between the buy and sell price for each transaction. This provides liquidity for markets and exchanges around the world.
So when the markets are volatile there is more need for liquidity which means there is more need for Virtu market maker services. In other words, the higher the volatility, the more generally Virtu generates income. So, in the event of a stock market crash, Virtu is expected to generate higher income and increased profits.
Look no further than last year at how the company fared over a period of crash. Virtu’s share price rose 64% in 2020, driven by higher revenues and higher profits. In the fourth quarter, revenue increased 69% from the same period a year earlier to $ 677 million, due to increased levels of volatility and trading volumes due to the pandemic.
Virtu generated net income of $ 198 million for the quarter, up from a net loss of $ 29 million. The weak fourth quarter 2019 figures were in large part due to costs associated with acquiring ITG to bolster Virtu’s other revenue stream, execution services, which provide investment professionals with business solutions. analysis and trading. But the bulk of the company’s revenue comes from market making. It has doubled year on year to reach $ 529 million. Execution services revenue increased 12% year over year to $ 149 million.
For the full year of 2020, revenue increased 113% to $ 3.2 billion, while net profit was $ 1.1 billion, compared to a net loss of 103.7 million dollars for 2019, due in part to the acquisition of ITG. The turnover and the net result for the year 2020 are records for Virtu.
Virtu’s outlook is good
This year, the Virtu share price is up around 9% from Monday’s prices, and that should come as no surprise as the markets remain volatile. The VIX volatility index remains high in the 1920s, which is above historical averages. On the call for fourth quarter results, CEO Douglas Cifu said Virtu’s performance to date in the first quarter “remains robust and comparable to the record daily average we achieved in 2020”.
That average daily stock trading volume in January was $ 14.7 billion, which is higher than the average of $ 10.9 billion in 2020. Much of it is due to an influx of retail investors on sites like Robinhood. This is good news for Virtu.
Despite all of its potential, Virtu is available at an excellent review right now. It trades at just 5.4 times earnings and 9.4 times futures earnings. It has a low price-to-sell ratio of just over 1 and a price-to-book value of just under 3. This makes it a good buy in any market, especially now with volatility that remains. high. But if the market crashes again, Virtu is definitely a stock you want in your portfolio.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.