Alright, I've had a chance to look through Virtu's Q2 results in more detail. Below is my post-earnings thesis on the stock explaining why I continue to own it & remain bullish over the next 12-36 months:
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Slide 5 of Virtu's earnings deck is important. It gives us a clear set of scenarios we can use to create a realistic earnings projection *without forecasting volatility*. It takes out the noise & lays out the math in terms of base case EPS + growth opportunities.pic.twitter.com/AVcg22Gbrm
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Let's zoom in on the top table. Virtu is making the case for a normalized, BAU EPS run rate of $2.69 based on historical results. Let's cut this to $2.50 for simplicity & assume Virtu can hit that in a worst case vol environment (like Q2 2021).pic.twitter.com/xstZW6k4ge
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Moving down the page - on top of the $2.50 we can add Virtu's organic growth projects, which did ~$500K ANTI per day in Q2 2021. $500K ANTI/day = ~$0.34 added EPS to the base case. $2.50 floor + $0.34 growth projects = $2.84 EPS run rate as of Q2.pic.twitter.com/zldkt02NDL
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Those growth projects aren't static. They have a growth trajectory shown below. Let's assume a +15% CAGR for these projects over the next 3 yrs leaving us with ~$800K growth project ANTI/day & $0.50 EPS contribution by 2024. $2.50 floor + $0.50 projects = $3.00 run rate by 2024pic.twitter.com/XOBqauAjYQ
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I can conservatively get to a 2024 floor EPS figure of $3.00 before factoring in ANY volatility. Let's put a 10x multiple on this 2024 EPS figure, still wildly below the industry or market average. $3.00 EPS at a 10x PE = a $30 FLOOR for the stock.
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Ways this exercise can turn out differently: - Virtu's base case $2.50 is too high (unlikely) - Virtu's growth projects grow faster than +15% CAGR - Volatility (Q2 2021 was as low a vol quarter as it gets)
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As with any stock, there's always the chance for a multiple re-rating if external factors change how the market values Virtu (M&A/activist target news, new projects added, etc...) If my 10x 2024 revenue moves to 12x for example we have a $36 floor instead of $30.
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I remain long Virtu. My floor valuation exercise gets me a conservative $30 per share with the potential for surprise volatility to push EPS and returns higher than that. Open to questions/feedback. FIN
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End of conversation
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