On November 14, 2023, CME Group Inc (CME, Financial) experienced a slight dip of -2.45% in its stock price, yet it maintained a 3.13% gain over the past three months. With an Earnings Per Share (EPS) of 8.38, investors are keen to understand if the stock is fairly valued. The following analysis delves into the intrinsic valuation of CME Group (CME), providing insights into whether the current market price reflects the true value of the company.
Company Introduction
Based in Chicago, CME Group operates a platform for trading futures and derivatives across a range of asset classes. With a rich history dating back to 1898 and a series of strategic acquisitions, the company has cemented its position in the financial services industry. The current stock price of $211.76 is juxtaposed against the GF Value of $220.94, suggesting a close alignment with the estimated fair value. This valuation serves as the foundation for a deeper examination of CME Group's financial health and growth prospects.
Summarize GF Value
The GF Value is a unique metric that assesses the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance forecasts. CME Group (CME, Financial) appears to be fairly valued according to this measure, with a market cap of $76.20 billion. The GF Value Line suggests that the stock price will likely oscillate around this fair value estimation, providing investors with a benchmark for assessing potential overvaluation or undervaluation.
Because CME Group is fairly valued, the long-term return of its stock is expected to closely mirror the rate of its business growth, which is an important consideration for investors seeking stable investment opportunities.
Financial Strength
When investing, assessing a company's financial strength is crucial to avoid potential capital loss. CME Group's cash-to-debt ratio of 0.7 positions it below 69.69% of its industry peers, indicating a need for careful consideration of its financial stability. Nevertheless, with a financial strength rating of 6 out of 10, the company maintains a fair balance sheet.
Profitability and Growth
Profitability is a key indicator of a company's risk profile. CME Group's impressive operating margin of 60.61% outperforms 88.75% of the Capital Markets industry, reflecting strong profitability. However, with a 3-year average annual revenue growth rate of only 0.9%, CME Group's growth is not leading the industry, which could impact long-term value creation for shareholders.
ROIC vs. WACC
An effective way to gauge profitability is by comparing the Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). Ideally, a company's ROIC should exceed its WACC. For CME Group, the ROIC is 1.58, which is lower than its WACC of 7.46, raising questions about the efficiency of capital utilization.
Conclusion
In conclusion, CME Group (CME, Financial) is fairly valued in the current market, with a solid financial condition and strong profitability. However, its growth and efficiency in capital utilization may not stand out within the Capital Markets industry. For a more detailed financial overview, investors can explore CME Group's 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.
