Why Virtu Financial Deserves a Spot in Your Portfolio Now

Virtu Financial, Inc. VIRT, a leading financial services company, is well poised to grow on the back of its diversified business and rising interest and dividends income, thanks to a high-interest rate environment. Headquartered in New York, Virtu Financial has a market cap of $3.6 billion.

Strong revenue contribution from the Market Making segment due to higher trading income will likely benefit the stock. We expect its capture rate from the unit to improve in the coming days, along with a decline in costs. Courtesy of solid prospects, this Zacks Rank #2 (Buy) stock is worth adding to your portfolio at the moment.

Let's delve deeper & check the positives for the stock.

An Outperformer: A glimpse at the company's price trend reveals that the stock has had an impressive run so far this year. Shares of VIRT have returned 9.4% against the 0.7% decline of the industry it belongs to, also outperforming the finance sector's 6.1% growth.

Zacks Estimate Story: One estimate for the 2024 bottom line moved north in the past 30 days versus no southward revision, reflecting analysts' confidence in the company. The Zacks Consensus Estimate for VIRT's 2024 bottom line indicates a 34.8% year-over-year increase to $2.48 per share. The consensus estimate for 2025 indicates further 8% growth on a year-over-year basis. The company beat earnings estimates twice in the past four quarters and missed on the other occasions.

The consensus mark for 2024 top line is pegged at $1.3 billion indicating 8.3% growth from a year ago. The same for 2025 predicts a further 4.6% increase.

Factors to Consider: The retail momentum is likely to continue, benefiting the stock. Although volatility remained low in the second quarter, its growth initiatives, like expanding into options, cryptocurrency, ETF block trading, IPO investing and others, position it well for long-term growth. Recent inclusion in the S&P SmallCap 600 index further instills investor confidence.

We expect its net brokerage, exchange, clearance fees and payments for order flow to continue on its declining path, boosting margins. The metric fell 16.9% and 17.9% in 2022 and 2023, respectively. Additionally, it exited the first quarter with cash and cash equivalents of $399.6 million while short-term borrowings, net, totaled $138.2 million. Its financial flexibility enables it to take shareholder-friendly moves.

In 2023, Virtu Financial bought back shares worth around $210 million. In April 2024, management approved an increase of $500 million in its share repurchase authorization over the next two years. Its dividend yield of 4.3% is higher than the industry average of 2.1%.

Despite recent price appreciation, the stock is currently trading at a discount. Its forward 12-month price-to-earnings ratio of 8.60X is below its five-year median of 8.98X and lower than the industry average of 13.01X. The company's underlying fundamentals are comparatively strong, as evidenced by a Value Score of B. These positive factors are likely to help the company maintain its share growth trajectory and continue outperforming the industry, making it an excellent candidate for your portfolio.

Key Risk

However, there is one factor that investors should keep an eye on.

With the market stabilizing fast, Virtu Financial's performance might suffer as it gains traction from market volatility. As such, it will have to depend on its diversification efforts. Nevertheless, we believe that a systematic and strategic plan of action will drive its growth in the long term.

Other Top-Ranked Players

Investors interested in the broader Finance space may look at some other top-ranked players like Hut 8 Corp. HUT, WisdomTree, Inc. WT and HIVE Digital Technologies Ltd. HIVE, each carrying a Zacks Rank #2 now.

The Zacks Consensus Estimate for Hut 8's current-year earnings is pegged at $2.50 per share, which witnessed one upward estimate revision in the past 60 days against no downward movement. The consensus mark for HUT's current year revenues suggests a 55.9% jump from a year ago.

The Zacks Consensus Estimate for WisdomTree's 2024 earnings indicates 51.4% year-over-year growth. During the past two months, WT has witnessed one upward estimate revision against none in the opposite direction. It met earnings estimates thrice in the past four quarters and beat once, with an average surprise of 2.3%.

The Zacks Consensus Estimate for HIVE Digital's current-year earnings suggests a 29.1% year-over-year improvement. During the past 30 days, HIVE has witnessed one upward estimate revision against none in the opposite direction. The consensus mark for current year revenues suggests a 36.2% jump from a year ago.

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