On August 6, 2023, Cboe Global Markets (CBOE, Financial) witnessed a daily gain of 3.97%, with its share price reaching $145.57. Despite this positive movement and an Earnings Per Share (EPS) of 2.79, the question remains: is the stock significantly overvalued? This article will delve into the intricate valuation analysis of Cboe Global Markets, providing readers with a comprehensive understanding of the stock's intrinsic value.
Understanding Cboe Global Markets
Cboe Global Markets Inc (CBOE, Financial) is a globally recognized provider of market infrastructure and tradable products. Offering cutting-edge trading, clearing, and investment solutions, Cboe Global Markets serves market participants across North America, Europe, and Asia Pacific. The company's commitment to operating a trusted, inclusive global marketplace is evident in its diverse product portfolio, which includes equities, derivatives, FX, and digital assets.
With a market capitalization of $15.4 billion and sales reaching $4 billion, Cboe Global Markets has established a strong presence in the industry. However, despite its current stock price of $145.57, the GF Value estimates the fair value to be $110.52, indicating a potential overvaluation.
Deciphering the GF Value
The GF Value is a unique valuation metric that represents the intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor reflecting the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's ideal trading value.
When a stock's price significantly exceeds the GF Value Line, it's likely overvalued and may deliver poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock might be undervalued and could offer higher future returns. In the case of Cboe Global Markets, the current price of $145.57 per share suggests significant overvaluation.
As a result, the long-term return of Cboe Global Markets' stock is likely to be much lower than its future business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. Therefore, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage.
Cboe Global Markets has a cash-to-debt ratio of 0.27, which ranks 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 health.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. A company with high profit margins, such as Cboe Global Markets, is often a safer investment than those with low profit margins. Over the past twelve months, the company generated a revenue of $4 billion and Earnings Per Share (EPS) of $2.79. Its operating margin is 24.75%, ranking better than 67.93% of companies in the Capital Markets industry. Overall, the profitability of Cboe Global Markets is strong, with a rank of 9 out of 10.
However, when it comes to growth, Cboe Global Markets ranks worse than 69.76% of companies in the Capital Markets industry. While the average annual revenue growth is 18.4%, the 3-year average EBITDA growth is -1.2%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides another perspective on profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the average rate a company is expected to pay to finance its assets. Ideally, the ROIC should be higher than the WACC. For Cboe Global Markets, the ROIC is 9.31, and the WACC is 7, indicating a healthy profitability ratio.
Conclusion
In conclusion, the stock of Cboe Global Markets (CBOE, Financial) appears to be significantly overvalued. Despite the company's fair financial condition and strong profitability, its growth ranks lower 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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