Company Information

Virtu Financial, Inc. engages in the provision of market making and liquidity services. It operates through the following segments: Market Making, Execution Services and Corporate. The Market Making segment engages in buying and selling of securities and other financial instruments. The Execution Services segment agency offers trading venues that provide transparent trading in global equities, ETFs, and fixed income to institutions, banks and broker dealers. The Corporate segment consists of investments in strategic financial services-oriented opportunities and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments. The company was founded by Vincent J. Viola and Douglas Cifu in 2008 and is headquartered in New York, NY.

Executive Summary

Investment Thesis: Due to the recent trends that retail trading has been increasing significantly (which we believe will continue), Virtu is in a great position to capitalize on future opportunities within the market. As a market maker, they are in position to not only profit off of increased market volume, but also potential increased volatility. As non-commision trading becomes easier to access, there is no doubt that more people will invest in the stock market/it’s derivatives, netting Virtu profits.  If one believes that there will be turbulent markets ahead, Virtu is in good position to profit off of volatility spikes. Furthermore, Virtu has performed well during low-volatility markets, proving themselves to be capable during a vast range of market conditions. They have also experience massive revenue growth over the past few years, expanding their market share at faster rates than their competitors, while also decreasing their debt.

Investment Merits: 

• Massive increase in trading volume

• Current average equities daily volume is around 14.7 billion, comparable to 10.9 billion in 2020, and 7 billion in 2019

• Retail trading increased 23% from December 2020 to January 2021

• Easier access to brokerages as time goes on

• Includes derivatives trading

• Virtu provides liquidity to brokers

• Higher volume means higher profits for Virtu

• Increase in volatility means higher profits

• Virtu also performs well in low-volatility environments

• More liquidity

• Consistent increases in trading revenue and overall revenue

• 30% of market orders placed in 2019 were through Vertu, 25% in 2018

• Net income was 631.8 million in 2020, -60.5 million in 2019

• Revenue at 2.913 billion in 2020, up from 1.273 billion in 2019

• Consistent dividends

• 23 consecutive quarters of $0.24 dividends

Investment Risks: 

• It’s worth noting that Virtu is a high-frequency trading firm, and the risk would be to see politicians implement a tax on financial transactions.

• As a market maker, the company is unlikely to take any directional risk, making it unlikely that a single trading error derails Virtu’s performance.

• It is also important to note that VIRT's free float and trading volume are rather low, which could be seen as ironic for a market maker.  According to Gurufocus, the float percentage sits at 42.27% which means the price movement could be erratic.

• A suggestion would be to use TAA to mitigate the risk and magnitude of under-performance against the market.

Reccomendation:

Buy 40 shares at current price.