If you’ve ever traded stocks on the Toronto Stock Exchange (TSX) or the TSX Venture Exchange, you’ve helped line the pockets of TMX Group (TSX:X). This Canadian stock exchange operator has been a consistent wealth-builder for investors, generating an astounding 4,630% in total returns since 2002.
TMX Group stock is currently trading at all-time highs, with a 38.5% total gain so far in 2024 after more than doubling over the past five years. So, should investors buy, sell, or hold TMX Group shares heading into 2025?
Diversification breeds stability
One of the key strengths of TMX Group is the diversity of its revenue streams. While the company is best known for operating the major Canadian stock exchanges, it has expanded into other business lines that now account for a significant portion of its total revenue.
In the last 12 months, TMX Group generated revenue from global data and analytics solutions, its Trayport energy trading platform, clearing and settlement services, and even a new segment called TMX VettaFi, which kicked in $131.8 million. Geographically, the company has also diversified, with only 24% of revenue now coming from Canada.
This diversification helps insulate the TMX Group from any single-market or single-product risks. Even if one area of the business experiences a downturn, the company’s overall financial performance remains resilient.
Meanwhile, a recent deal with Brazil’s B3 (owners of the Brazil Stock Exchange) could result in some Brazilian mining, energy, and renewable energy stocks exploring dual listings on the TSX, unlocking new revenue sources for the TMX Group.
Recession-resistant business model
TMX Group’s business model also appears relatively recession-resistant. While capital-raising activity may slow during economic downturns, the company still generates steady revenues from trading volumes, data & analytics subscriptions, and clearing and settlement fees.
In the first nine months of 2024, the company reported 20% year-over-year revenue growth, driven by acquisitions and strong organic performance across multiple segments, including a 27% increase in Trayport licensees, 19% higher derivatives trading volumes, and an 11% rise in equity trading.
Analysts project TMX Group could grow earnings by 12.9% in 2025, despite potential economic headwinds. This earnings growth, combined with the company’s impressive track record, makes a compelling case for holding the stock.
Reasonable valuation
On the surface, TMX Group’s valuation may seem a bit stretched, with the stock trading at 29.9 times trailing earnings. However, this price-to-earnings (P/E) multiple is actually below the industry average P/E of 35.8.
Furthermore, the company’s superior profitability — with gross margins of 65% and net margins of 29.7% — justifies a premium valuation compared to industry peers. The stock also looks cheap on a price-to-book basis, trading at just 0.3 times book value versus an industry average of 3.5.
So, while the shares may not be an outright bargain, TMX Group stock’s valuation appears reasonable, given its robust financial performance and growth prospects.
Dividend growth sweetens the TMX Group stock deal
One final factor to consider is TMX Group’s dividend. The company’s quarterly payout currently yields 1.7% annually, with a payout ratio of around 50% of earnings. Importantly, management has raised the dividend at an average annual rate of 8.9% over the past five years.
Steadily rising dividends can meaningfully boost an investor’s total returns over time, especially when combined with TMX Group’s potential for capital appreciation.
Historically, reinvesting X stock’s dividends could have turned a 2,000% capital gain into a 4,630% total return for investors since 2002.
The verdict: Hold TMX Group stock heading into 2025
TMX Group stock’s fundamentals remain an attractive long-term investment. The company’s diversified revenue streams, resilient business model, reasonable valuation, and growing dividend make a compelling case to hold the stock.
While the shares may be due for a consolidation phase after their impressive 2024 run, the long-term growth trajectory appears intact. Analysts’ 12.9% earnings growth forecast for 2025 suggests the stock still has room to run.
For investors looking to gain exposure to the Canadian financial markets, TMX Group remains a high-quality, competitively advantaged play worthy of a spot in your portfolio. Hold on to your shares and enjoy the ride in 2025 and beyond.
