• If you are wondering whether CME Group at around US$262 per share reflects fair value or an opportunity, this article breaks down what the current price might be implying about the stock.
• The stock is up 2.4% over the last week, even though it is down 8.2% over the past month, 2.8% year to date, and has returned 0.5% over the last year. Longer term returns of 63.6% over three years and 49.1% over five years provide additional context.
• Recent headlines around CME Group have continued to focus on its role at the center of global derivatives markets and how investor sentiment shifts as trading activity and risk appetite change. This backdrop helps explain why shorter term moves in the share price can look very different from the multi year performance.
• CME Group currently has a valuation score of 2 out of 6. The next sections will unpack what different valuation methods say about the stock and will point to an even more useful way to think about value at the end of the article.

CME Group scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: CME Group Excess Returns Analysis

The Excess Returns model looks at how efficiently a company uses shareholders’ equity, then compares those returns with the cost of that equity to estimate what the stock might be worth today.

For CME Group, book value is $73.57 per share and the stable book value used in the model is $85.38 per share, based on future book value estimates from 3 analysts. The model applies a stable EPS of $13.69 per share, sourced from weighted future return on equity estimates from 5 analysts, and an average return on equity of 16.03%.

The cost of equity is set at $6.64 per share, while the excess return is $7.04 per share. This means the model assumes CME Group generates returns above its equity cost and capitalizes those excess returns over time to arrive at a total equity value per share.

This Excess Returns valuation produces an intrinsic value of about $251.53 per share, which is around 4.2% below the recent share price of roughly $262, so the stock screens as slightly overvalued on this method, but not by a wide margin.

Result: ABOUT RIGHT

CME Group is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: CME Group Price vs Earnings

For a profitable company like CME Group, the P/E ratio is a useful way to connect what you pay for each share with the earnings that support that price. In general, higher growth expectations and lower perceived risk can justify a higher P/E, while slower expected growth or higher risk tend to line up with a lower, more conservative multiple.

CME Group currently trades on a P/E of about 22.4x. That sits below the Capital Markets industry average P/E of roughly 39.5x and also below the peer group average of about 25.6x, so on simple comparisons the stock looks cheaper than many similar companies.

Simply Wall St’s Fair Ratio takes this a step further. It estimates what a P/E might reasonably be, given CME Group’s earnings profile, industry, profit margins, market cap and risk factors. For CME Group, the Fair Ratio is 16.0x, which is more tailored than a broad industry or peer comparison. With the current P/E of 22.4x sitting above this Fair Ratio, the stock screens as expensive on this method.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your CME Group Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in, letting you attach a clear story about CME Group to the numbers you care about, such as your assumed fair value and your own estimates for future revenue, earnings and margins. You can then link that story to a financial forecast and on to a fair value that you can compare with the current share price to help decide whether the stock looks attractive or stretched. All of this is available within an easy tool on Simply Wall St’s Community page that updates as new news or earnings arrive. This is why one investor might build a Narrative around the higher US$353.00 target with confidence in crypto and AI futures, while another might focus on the lower US$230.00 target if they are more cautious about competition and trading volumes.

Do you think there's more to the story for CME Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.