On August 05, 2023, Cboe Global Markets (CBOE, Financial) experienced a daily gain of 3.97%, with its Earnings Per Share (EPS) standing at 2.79. However, the question arises - is the stock significantly overvalued? This article aims to provide a comprehensive valuation analysis of Cboe Global Markets (CBOE), offering valuable insights for potential investors. Let's delve into the details.
Company Overview
Cboe Global Markets Inc (CBOE, Financial) is a leading provider of market infrastructure and tradable products. The company offers innovative trading, clearing, and investment solutions to market participants worldwide. With its 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's trading solutions and products span multiple asset classes, including equities, derivatives, FX, and digital assets, across North America, Europe, and Asia Pacific.
Despite a current stock price of $145.57, the GF Value, an estimation of the stock's intrinsic value, is $110.52. This discrepancy suggests potential overvaluation. The company's market cap stands at $15.4 billion, with sales reaching $4 billion.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor considering past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
For Cboe Global Markets, the stock appears to be significantly overvalued based on the GF Value calculation. At its current price of $145.57 per share, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Cboe Global Markets has a cash-to-debt ratio of 0.27, which is worse than 82.71% of companies in the Capital Markets industry. The overall financial strength of Cboe Global Markets is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Cboe Global Markets has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and Earnings Per Share (EPS) of $2.79. Its operating margin is 24.75%, which ranks better than 67.93% of companies in the Capital Markets industry. Overall, the profitability of Cboe Global Markets is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Cboe Global Markets is 18.4%, which ranks better than 70.59% of companies in the Capital Markets industry. However, the 3-year average EBITDA growth rate is -1.2%, which ranks worse than 69.76% of companies in the Capital Markets industry.
ROIC vs WACC
Comparing a company's return on invested capital to the weighted average cost of capital provides another measure of profitability. 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 9.31, and its cost of capital is 7.
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 69.76% of 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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