CME Group Inc.’s (NASDAQ:CME) price-to-earnings (or “P/E”) ratio of 23.6x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 14x and even P/E’s below 8x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.
CME Group could be doing better as it’s been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
See our latest analysis for CME Group
If you’d like to see what analysts are forecasting going forward, you should check out our free report on CME Group.
CME Group’s P/E ratio would be typical for a company that’s expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered a decent 8.0% gain to the company’s bottom line. The solid recent performance means it was also able to grow EPS by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 6.0% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 8.9% per annum, which is noticeably more attractive.
In light of this, it’s alarming that CME Group’s P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company’s business prospects, but the analyst cohort is not so confident this will happen. There’s a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of CME Group’s analyst forecasts revealed that its inferior earnings outlook isn’t impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren’t likely to support such positive sentiment for long. Unless these conditions improve markedly, it’s very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider before investing and we’ve discovered 1 warning sign for CME Group that you should be aware of.
It’s important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
Related Quotes
Slalom LLC earned a top-5 ranking among midsize companies in the 2022 Detroit Free Press Top Workplaces competition.
AJG publishes results data from HighTide Therapeutics' Phase 2 Study of HTD1801 Treatment in Adults with PSC
$500 million up for grabs in Appalachian funding, but strict requirements will make it a challenge.
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the…
Now that the election is over, Gov. Mike DeWine and state lawmakers will spend a big part of 2023 setting the next 2-year state budget, Thomas Suddes writes.
And more of the week's best financial insight
When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider…
GreenStone Farm Credit Services earned a top-5 ranking among large companies in the Detroit Free Press Top Workplaces competition.
Cano Health (NYSE: CANO), a value-based primary care provider, saw its shares drop 29.5% this week, according to data from S&P Global Market Intelligence. Its stock is likely to bounce back a little next week, as bargain hunters may flock to the stock now that it has hit a 52-week low.
If you want to know who really controls Merck & Co., Inc. ( NYSE:MRK ), then you'll have to look at the makeup of its…
Maguire is chasing her second title while Ko is close to claiming her second straight LPGA Tour player of the year.
Does the November share price for JD.com, Inc. ( NASDAQ:JD ) reflect what it's really worth? Today, we will estimate…
Negotiators at the COP27 conference agreed to set up a fund to compensate poorer nations worst-hit by climate change. The historic deal concluded the U.N. climate summit, while broader commitments to cut CO2 emissions remain under negotiation. Photo: Joseph Eid/AFP/Getty Images
For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any…
The 25-year-old turned a one-shot lead into a five-shot edge as she chased down the two-million-dollar (£1.6million) prize.
Given CEO Warren Buffett's straightforward investing advice and a long track record of huge returns, it's not surprising that investors closely follow Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) every move. Berkshire's most surprising purchase in the third quarter was Taiwan Semiconductor Manufacturing (NYSE: TSM), the world's largest microchip manufacturer.
In this article, we will take a look at billionaire Steve Cohen’s top technology stocks. If you want to see more of billionaire Steve Cohen’s top technology stocks, go directly to Billionaire Steve Cohen’s Top 5 Technology Stocks. Billionaire Steve Cohen is the founder of Point72 Asset Management, a global asset manager that uses discretionary […]
‘Rich Dad Poor Dad’ is sounding the alarm — again.
Long-time investors are no doubt familiar with the fabled FAANG stocks, which have been some of the most disruptive and wealth-generating companies of the past 10 years: Facebook parent Meta Platforms (NASDAQ: META) Apple (NASDAQ: AAPL) Amazon (NASDAQ: AMZN) Netflix (NASDAQ: NFLX) Google, which rebranded as Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) Every company on this list is the undisputed leader in its field.
The chief investment strategist at Charles Schwab recommends investors look beyond broad categories of value or growth. "This is time you want to look for great companies without putting blinders on."
