As of August 29, 2023, Cboe Global Markets Inc (CBOE, Financial) experienced a slight daily loss of -0.93%, but overall, it has shown a 3-month gain of 12.73%. With an Earnings Per Share (EPS) of 6.1, the question arises: is the stock significantly overvalued? This comprehensive analysis aims to answer this question by delving deep into the company's valuation, financial strength, profitability, and growth.
About Cboe Global Markets
Cboe Global Markets, Inc is a leading provider of market infrastructure and tradable products. The company delivers cutting-edge trading, clearing, and investment solutions to market participants around the world. With a commitment to operating a trusted, inclusive global marketplace, Cboe Global Markets provides leading products, technology, and data solutions that enable participants to define a sustainable financial future. The company offers trading solutions and products in multiple asset classes, including equities, derivatives, FX, and digital assets, across North America, Europe, and Asia Pacific.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to the GF Value, Cboe Global Markets (CBOE, Financial) appears to be significantly overvalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $150.27 per share, Cboe Global Markets stock appears to be significantly overvalued.
Given that Cboe Global Markets is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Checking the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength have a higher risk of permanent loss. A good way to understand the financial strength of a company is to look at the cash-to-debt ratio and interest coverage. Cboe Global Markets has a cash-to-debt ratio of 0.3, which is worse than 80.96% of 751 companies in the Capital Markets industry. The overall financial strength of Cboe Global Markets is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. Cboe Global Markets has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.90 billion and Earnings Per Share (EPS) of $6.1. Its operating margin is 25.46%, which ranks better than 66.72% of 634 companies in the Capital Markets industry. Overall, GuruFocus ranks the profitability of Cboe Global Markets at 10 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. On the other hand, if a company's revenue and earnings are declining, the value of the company will decrease. Cboe Global Markets's 3-year average revenue growth rate is better than 70.46% of 677 companies in the Capital Markets industry. However, Cboe Global Markets's 3-year average EBITDA growth rate is -1.2%, which ranks worse than 70.56% of 462 companies in the Capital Markets industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Cboe Global Markets's return on invested capital is 9.98, and its cost of capital is 7.27.
Conclusion
In summary, the stock of Cboe Global Markets (CBOE, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 70.56% of 462 companies in the Capital Markets industry. To learn more about Cboe Global Markets stock, you can check out its 30-Year Financials here.
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