NYMEX Holdings Inc. (NMX) is basically a monopoly
If you follow the IPO market, you are likely familiar with a recent IPO, NYMEX Holdings (NMX). The New York Mercantile Exchange is one of a kind trading platform and basically holds a monopoly in commodity futures exchange. As investors, we love monopoly or companies with little to no competition. NYMEX fits this mold. Trading slightly below its all time high of $150 at $123, is this the right time to get in?
The NYMEX is the world's largest physical commodity futures exchange. Trading is conducted through two divisions: the NYMEX Division, which is home to the energy, platinum and palladium markets, and the COMEX Division, where metals like gold, silver and copper and the FTSE 100 index options are traded. The NYMEX uses an outcry trading system during the day and an electronic trading system after hours. In 1872, a group of dairy merchants founded "The Butter and Cheese Exchange of New York", and in 1994, the NYMEX merged with the COMEX (commodity exchange). Futures and options on energy and precious metals have become great tools when companies try to manage risk by hedging their positions. The ease with which these instruments are traded is vital to hedging activities and gauging future prices, making the NYMEX a vital part of the trading and hedging worlds (investopedia.com, 2007)
The NYMEX business model is similar to that of a brokerage firms. They charge per transaction or trade. In this respect, it is comforting to see such headlines as “NYMEX sets more CME Globex daily volume records” day after day as it seems. What excites us most about NMX is the fact this company has been in existence forever and it is the “de facto” platform commodity trading. Moreover, the company has already established itself as the leader, not to mention the entire infrastructure is already in place; this is a money generating system. Unlike some new IPO, this is not a company that needs to prove itself. As aforementioned, we also like the fact there is very competition. According to Reuters, here is how NMX compare to its industry peers:
| P/E (12 mo. trailing) | Higher |
| Price to Sales (12 mo. trailing) | Higher |
| Dividend Yield | Lower |
| Sales Growth (12 mo. trailing) | Higher |
| EPS (12 mo. trailing) | Lower |
While this is an expensive stock with a P/E of 75, we believed it is justified. However, if you look at the book value (BV) and Market Value (MV), perhaps the stock does deserve a higher P/E. As trading volume continues to grow, we see no other company to be in a better position to reap the benefits. Most Wall St. Analysts expect NMX to underperformed, but we believed otherwise. Our view is NMX will surprise the Street when it reports. Although this is one expensive stock at $123 per share, we recommend you spend some time evaluating the stock buying doing anything. Based on our evaluation, we believed if NMX were to fall near $115 per share, it would be a great buy. We see this stock back at $150 in 6 months or sooner. Best of luck!
