On September 18, 2023, Cboe Global Markets Inc (CBOE, Financial) saw a daily gain of 1.68%, contributing to a 3-month gain of 10.86%. The company's Earnings Per Share (EPS) stands at 6.1. However, the question arises: is the stock significantly overvalued? This article provides an in-depth valuation analysis to answer this question. Continue reading to make an informed investment decision.
Company Introduction
Cboe Global Markets, Inc, a provider of market infrastructure and tradable products, delivers cutting-edge trading, clearing, and investment solutions to market participants worldwide. The company is committed to operating a trusted, inclusive global marketplace and providing leading products, technology, and data solutions that enable participants to define a sustainable financial future. Cboe offers trading solutions and products in multiple asset classes, including equities, derivatives, FX, and digital assets, across North America, Europe, and Asia Pacific.
With a current share price of $151.77, Cboe Global Markets (CBOE, Financial) has a market cap of $16 billion. It is essential to compare this stock price with the company's fair value or GF Value, estimated at $100.14. This comparison paves the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It 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.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, Cboe Global Markets (CBOE, Financial) appears to be significantly overvalued. The stock's fair value is estimated using three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Given that Cboe Global Markets is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Before buying a stock, it is crucial to check the company's financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. Cboe Global Markets has a cash-to-debt ratio of 0.3, which is worse than 81.03% of 754 companies in the Capital Markets industry. The overall financial strength of Cboe Global Markets is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Cboe Global Markets has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $3.90 billion and Earnings Per Share (EPS) of $6.1. Its operating margin of 25.46% is better than 66.98% of 645 companies in the Capital Markets industry. Overall, GuruFocus ranks Cboe Global Markets's profitability as strong.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance 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 70.53% of 682 companies in the Capital Markets industry. However, the 3-year average EBITDA growth rate is -1.2%, which ranks worse than 70.43% of 470 companies in the Capital Markets industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Cboe Global Markets's return on invested capital is 9.98, and its cost of capital is 7.18.
Conclusion
In summary, the stock of Cboe Global Markets (CBOE, Financial) shows every sign of being significantly overvalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 70.43% of 470 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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