Cboe Global Markets, Inc. (CBOE)

FairStock Score: 61/100 — STEADY

Key Financials

Strengths

• Diversified exchange platform with network effects across options, equities, futures, and FX
• Exceptional profitability: 26% net margins and $1.3B free cash flow generation
• Strong financial health: ROE 23.36%, Altman Z-Score 5.62, debt-to-equity 0.31
• Piotroski F-Score of 8/9 demonstrates consistent financial quality
• Low beta (0.34) provides downside protection in market volatility

Concerns

• Severely overvalued: trades at $301 versus Graham Number of $57.38 (-425% margin of safety)
• Elevated multiples: P/E 27.25 and EV/EBITDA 62.28 leave minimal room for disappointment
• Anemic FCF yield of 1.1% inadequate for capital deployment opportunities
• Exchange business subject to cyclical trading volumes and regulatory constraints
• Limited disclosed revenue/profit growth rates suggest mature, stagnant top-line dynamics

AI Analysis

Cboe presents an intriguing paradox—excellent operational quality wrapped in concerning valuation. The business itself deserves respect: a diversified derivatives and securities exchange network with a legitimate competitive moat rooted in network effects, proprietary data, and regulatory barriers. Their latest quarter showed 26% net margins and $1.3B in free cash flow, demonstrating the cash-generative nature of exchange businesses. The Piotroski F-Score of 8/9 and Altman Z-Score of 5.62 indicate solid financial health with minimal distress risk. ROE of 23.36% is respectable for a mature financial infrastructure business. However, here's where I must apply discipline: Cboe trades at a Graham Number of just $57.38 versus a market price of $301.27—a negative margin of safety exceeding 425%. This isn't a rounding error; it's a fundamental disconnect. The P/E of 27.25 and EV/EBITDA of 62.28 suggest investors are pricing in perpetual growth that exchanges rarely deliver. The FCF yield of 1.1% is anemic for a $31.5B market cap business. While the low beta of 0.34 offers defensive appeal, I cannot justify this valuation even for a quality compounder. At Graham's core principle: we want to pay significantly less than calculated intrinsic value. Cboe fails that test decisively. The business quality is there, but the price demanded is excessive.

Bull Case

Cboe's diversified exchange platform positions it as essential infrastructure in global capital markets, capable of sustained 10-12% earnings growth as trading volumes increase post-rate cuts. The 23% ROE and fortress balance sheet enable accretive M&A and share buybacks, potentially delivering mid-teen total returns for patient shareholders entering at lower prices.

Bear Case

Market overvaluation creates vulnerability to any earnings disappointment or trading volume decline. If volatility normalizes or regulatory pressures increase, the 62x EV/EBITDA multiple compresses sharply, potentially 30-40%, as exchange multiples historically revert to 15-20x during downturns.

Data from SEC filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer