With a daily gain of 1.71%, a 3-month gain of 12.06%, and an Earnings Per Share (EPS) (EPS) of 8.19, CME Group Inc (CME, Financial) is a stock that has attracted attention from investors. The question that arises is, is the stock fairly valued? This article delves into a detailed valuation analysis of CME Group, offering readers key insights into the company's financial standing and future prospects.
Company Overview
Founded in 1898, CME Group Inc is a Chicago-based company that operates exchanges, enabling investors, suppliers, and businesses to trade futures and derivatives based on various financial instruments and commodities. The company went public in 2002 and has since consolidated parts of the industry through strategic mergers and acquisitions. With a share price of $206 and a market cap of $74.10 billion, CME Group presents an interesting case for valuation analysis.
Understanding the GF Value
The GF Value is a proprietary measure that presents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, CME Group's stock appears to be fairly valued. This assessment is based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Since the stock price is close to the GF Value Line, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. CME Group has a cash-to-debt ratio of 0.58, which ranks worse than 73.02% of 756 companies in the Capital Markets industry. The overall financial strength of CME Group is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term offers less risk for investors. CME Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.20 billion and Earnings Per Share (EPS) of $8.19. Its operating margin is 60.32%, which ranks better than 88.75% of 640 companies in the Capital Markets industry. Overall, the profitability of CME Group is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. CME Group's 3-year average revenue growth rate is worse than 64.71% of 680 companies in the Capital Markets industry. CME Group's 3-year average EBITDA growth rate is 6.2%, which ranks worse than 61.29% of 465 companies in the Capital Markets industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also help evaluate its 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. During the past 12 months, CME Group's ROIC is 1.45 while its WACC came in at 7.61.
Conclusion
In conclusion, the stock of CME Group appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 61.29% of 465 companies in the Capital Markets industry. To learn more about CME Group stock, you can check out its 30-Year Financials here.
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