With a daily gain of 2.7% and a 3-month gain of 19.92%, Cboe Global Markets Inc (CBOE, Financial) has an impressive track record. However, with an Earnings Per Share (EPS) of 6.1, the question arises: Is the stock significantly overvalued? In this article, we delve into an in-depth valuation analysis of Cboe Global Markets (CBOE) to answer this question.
Company Introduction
Cboe Global Markets, Inc is a leading provider of market infrastructure and tradable products. With a commitment to operating a trusted, inclusive global marketplace, the company delivers cutting-edge trading, clearing, and investment solutions to market participants worldwide. Providing trading solutions and products in multiple asset classes, including equities, derivatives, FX, and digital assets, Cboe Global Markets operates across North America, Europe, and Asia Pacific.
At its current price of $174.08 per share, Cboe Global Markets has a market cap of $18.40 billion. However, when compared to the GF Value of $82.58, the stock appears to be significantly overvalued. This valuation is based on the company's historical trading multiples, past performance, and future business performance estimates.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally trade at. This value 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.
Because Cboe Global Markets is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial for investors to carefully review a company's financial strength before deciding whether to buy shares. Cboe Global Markets has a cash-to-debt ratio of 0.3, which ranks worse than 80.5% of 759 companies in the Capital Markets industry. GuruFocus ranks Cboe Global Markets's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. 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 68.31% of 650 companies in the Capital Markets industry. Overall, GuruFocus ranks the profitability of Cboe Global Markets at 9 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Cboe Global Markets is 18.4%, which ranks better than 71.37% of 681 companies in the Capital Markets industry. The 3-year average EBITDA growth is -1.2%, which ranks worse than 69.33% of 476 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 6.91.
Conclusion
In conclusion, 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. Its growth ranks worse than 69.33% of 476 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
