Invest in Volatility? Cboe Global Markets


Historical growth and multiple averages indicated a higher upside

Cboe, $12.2 billion Illinois-based investment solutions company, could widely be known by its volatility VIX products.

The company just reported its fourth quarter and full year results. Cboe reported its figures now including its acquired company Bats Global Markets.

In its fourth quarter, Cboe reported 86% higher revenue vs. its year-prior period, and 470% rise in profits. Excluding the acquired Bats operations, Cboe still reported a healthy 8% rise in revenue.

“2017 was a transformational year for Cboe Global Markets. We made great strides in our integration with Bats Global Markets, while continuing to deliver value to our customers as well as our shareholders.

“We delivered on our key strategic initiatives and achieved record trading in our highest-margin proprietary products, including VIX futures and options and SPX options, while continuing to launch new innovative products such as Cboe Bitcoin Futures. Looking ahead, I believe our strong financial position, proprietary products, diversified revenue mix and expanded global base will allow us to continue to grow our business and create shareholder value.”

Edward T. Tilly, Cboe Global Markets Chairman and Chief Executive Officer

In 2017, Cboe’s debt also climbed to $1.2 billion from nil in 2016 while book value ended up at $3.11 billion.

In the past three fiscal years excluding 2017, Cboe allocated $646 million in financing activities (mostly dividend payouts and repurchases), and generated $604 million in free cash flow.

Analysts have an average price target of $128.67/share vs. $107 at the time of writing. Using historical figures and multiples indicated a much larger upside figure compared to today’s price at $270/share.

Disclosure: no shares in Cboe.

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