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Why Should You Add Virtu Financial (VIRT) to Your Portfolio?

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Virtu Financial, Inc. (VIRT - Free Report) is constantly favored by investors on the back of its growth amid market volatility and solid segmental contributions.

Over the past 60 days, the company's 2021 and 2022 earnings estimates move 22.1% and 1.1% north, respectively, from the corresponding year-ago reported figures.

The company managed to beat on earnings in all the trailing four quarters, the average being 30%.

Moreover, its return on equity stands at 45.7%, higher than the industry's average of 17.8%.

Now let’s see what makes this stock an investor favorite.

The leading provider of financial services and products has been benefiting from the COVID-led market uncertainty for a while now.

While most companies suffered a setback from the prevalent pandemic crisis, Virtu Financial earned a sweet spot following turbulence in the market. Being a high-frequency trader, the company took a hit from an uninterrupted financial market in recent years. However, the pandemic proved to be a boon as market volatility soared. With greater instability, the need for liquidity increases, which in turn, provides the company with more trading and profit-making opportunities.

The currently Zacks Rank #2 (Buy) company is consistently taking up strategic initiatives to enhance its portfolio. It recently inked a deal with the Pyth Network whereby the company is required to provide its financial market data across equities, FX, futures and cryptocurrencies for usage through smart contracts via the Solana blockchain and other major blockchains.

This miscellaneous financial services provider is steadily gaining traction from its segments as well. For instance, its Market Making segment has been contributing a lion’s share to its overall revenues over time. The same segment also benefited from KCG Holdings Inc.’s quantitative market-making strategies. Revenues from this unit skyrocketed 152.2% year over year in 2020. However, the metric dipped to some extent in the first quarter of 2021. The segment provides wholesale Market Making services across the board in the company’s underlying businesses. We expect the segment to continue performing well, aided by the growing retail engagement and market volatility.

The Execution Services Segment continues to benefit from the 2019 ITG buyout, which diversified its revenues along with leveraging its core technology. ITG helps brokers and asset managers reduce the cost of implementing investments via technology-enabled liquidity, execution, analytics and workflow solutions. In 2020 and during the first quarter of 2021, revenues from this segment grew 32.2% and 15.7% year over year, respectively, on the back of commissions, workflow technology and analytics. We expect the segment to continue performing well, given the current market scenario.

Virtu Financial's solvency level also remains a positive. It already paid down debt worth $289 million in 2020. Repayment of debt enabled the company to successfully lower its leverage by 16.5% from 2019 end to $1.67 billion as of Dec 31, 2020. In the first quarter, long-term debt dipped 0.2% to $1.6 billion from the level at 2020 end. Its total debt is 44.5% of capital, lower than the industry’s average of 45.8%. Its times interest earned stands at 13.9X, lower than the industry's average of 8.3X.

Owing to its financial strength, the company deployed capital in the form of dividends for 23 straight quarters. The board members sanctioned the enhancement of share buyback plan to $470 million.

Its dividend yield stands at 3.4%, higher than the industry average of 1.3%. Robust cash flows should enable the company to maintain its dividend payment policy along with share repurchases. Its intelligent capital management strategy should instill investors’ confidence in the stock.

Further, the company’s diversified business strengthens its position for the long haul.

Price Performance

Shares of the company have gained 16.8% in the past year, outperforming its industry’s growth of 5.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Other Stocks to Consider

Other companies worth considering with the same Zacks Rank in the said space include Intercorp Financial Services Inc. (IFS - Free Report) , XP Inc. (XP - Free Report) and Moodys Corporation (MCO - Free Report) .

Intercorp Financial, XP and Moodys managed to deliver a trailing four-quarter surprise of 257%, 30% and 22.3%, on average, respectively.

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