This is a trading blog, so I figure rather than add another large cap financial services company to my Watchlist (Bank of America and Wells Fargo had been under consideration), I decided to go where long-term sustainable growth is more likely.
I only hope this small company does not get gobbled up for many years. This one reminds me of my old firm Qtrade Canada, which excelled from Day One. OptionsXpress, however, has a more specialized product, a much bigger market and less competition in the space.
The business is simple to understand: they offer an electronic trading platform for options traders. We know that is a business that is growing in leaps and bounds as independent traders become more sophisticated with the tools.
Thirty years ago, this was a business that didn’t exist. When it was introduced 25 years ago, stock trading volumes zoomed as a result. Now, most large capital pools and even many individual traders use advanced, highly sophisticated options trading strategies. In future, as the tactics and the advanced platforms get better understood by the average Joe, I see blue sky for this company.
As to the quality of the technology, I have sophisticated options traders – former CBOE specialists – tell me it’s pretty good stuff, and they use it. That’s enough validation for me.
As to management, I haven’t met any of them, but I see they sure aren’t kids. These people have been around for years in the options trading business, and they have focused their efforts to what they know. I like that.
But the bottom line is the growth rates of revenues and earnings, and the high margins involved. Competition may cut in, but the market is also growing rapidly. This company has virtually zero debt, and no competitor today that matches up, so I don’t see any reason why they cannot continue on the fast track.
As you know, a Cara 100 company may not be a fast-growth stock, but I have to like the financial strength, the operating metrics, management and the business model. This company has enough for me.
Now remember; a company is not a stock. I am not making any stock recommendation here – just telling you the company is going into the Cara 100 Watchlist.