Virtu Financial has spiked more than 15% as the coronavirus crash has rocked markets, while its public peers have tanked. Here's why analysts say the stock's run may be short-lived.
- Shares of Virtu Financial - the high-frequency-trading and market-making giant - have outperformed other capital markets stocks by a wide margin this quarter during the coronavirus-driven market sell-off.
- Goldman Sachs analysts noted in a report to clients this week that for the year through March 26, shares had risen 42% - a notable gain given other public names in the capital markets universe have tumbled.
- High-speed trading firms typically benefit from the high volume of orders placed during wild times in the market like these. Privately held rivals like Citadel Securities are likely reaping similar benefits.
- Goldman, for its part, has given the stock a "neutral" rating. Some analysts say the stock's recent gains as a result of the intense market volatility have already been priced in, and may have little room left to run.
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The stock market's wild ride in recent weeks - fueled by the unprecedented economic damage the novel coronavirus is inflicting around the world - has produced plenty of losers in the market. Virtu Financial is not one of them.
Shares of the New York-based high-frequency-trading and market-making giant have handily outperformed other capital market stocks like those of traditional exchanges, asset management firms, and alternative asset managers.
Virtu has risen 16% since the market topped on February 19, while the benchmark S&P 500 has tumbled 24% over the same period.
Further, as Goldman Sachs noted in a report to client this week, Virtu has not outperformed by a hair but by a mile, rallying by 42% from the start of the year through March 26. For the analysts' coverage universe, that means it's the only one in the green on a roughly three-month basis.
High-speed trading firms typically benefit from the high volume of orders placed during wild times in the market like these, and tend to strike out when markets are calmer. The Cboe Volatility Index - or VIX, the popular gauge of the S&P 500's implied volatility - has soared in recent weeks.
Privately held rivals like Citadel Securities, the high-speed trading firm affiliated with the noted Chicago-based hedge fund Citadel, are likely reaping similar benefits. A Citadel spokesperson did not return a request for comment.
Other names in the capital markets space have posted brutal returns during the same time, with the major US stock indexes set to log dismal first quarters. Wisdom Tree Investments? The worst of the group, down 50%. Shares of Cboe Global Markets and New York Stock Exchange parent Intercontinental Exchange? Down 24% and 14%, respectively.
The stark differences stand out in the note from analysts led by Alexander Blostein.
Now, some analysts say the stock may have little gas left in the tank, at least in the near-term.
Some say the stock's recent gains as a result of the intense market volatility have already been priced in, and may have little room left to run. Goldman carries a "neutral" rating on the firm, and recently upped its price target from $18 to $22 a share, a level the stock has traded around for much of March and fell below in Tuesday trading.
"While our estimates are moving higher, we think that the elevated volume and volatility levels are largely reflected in the shares, and we continue to look for signs that higher NTI is sustainable," UBS analysts led by Alex Kramm wrote in a note to clients dated March 3, referring to net trading income. "As a result, we remain on the sidelines."
Kramm has also rated Virtu's stock "neutral."
Virtu, which is set to release its official first-quarter earnings results in early May, has already reported a rise in earnings since last quarter.
In a preliminary earnings statement, Virtu said for the quarter through March 19 it expects results to show income from trading between $489 and $497 million, and adjusted net trading income between $509 and $519 million.
That's a marked rise from performance during the fourth quarter, when the company reported adjusted net trading income of $257.2 million.
In a note dated March 20, Jefferies analyst Daniel Fannon said the firm's preliminary daily adjusted net trading income results were "basically double" his estimates. His price target remained unchanged, at $19.
Virtu shares fell 5% on Tuesday, trading around $20 per share.
