CBOE Global Markets (CBOE) is a diversified options exchange that operates in five segments: Options, U.S. Equities, Futures, European Equities, and Global FX. The products offered through the various segments include options on equities and indices, equities, futures, bitcoins, exchange-traded products, exchange-traded commodities, and foreign exchange services.
CBOE has seen solid growth over the last three years.
The earnings per share have grown by an average of 13% while sales have grown by an average rate of 47% over this time.
Those numbers were even better in the most recent quarter with the EPS up 38% and sales were up 225%.
The company’s profit margin is an incredible 49% while the return on equity is at 23.2%.
Despite the incredible fundamentals, there is a higher level of pessimism toward the stock than I would have thought. The short interest ratio is at 5.75. This means that the number of shares sold short amount to almost six days of average trading volume. This is good because if the stock rallies and the short sellers have to cover their position it adds buying pressure to the stock.
Analysts are also pretty conservative with their opinions on the stock. Of the 13 analysts following the stock, five have it rated as a “buy” or better while eight have it rated as a “hold”.
CBOE was in overbought territory for the entirety of 2017 based on the weekly stochastics and it was in overbought territory for almost all of the final three quarters based on the 10-week RSI. The slide in the overall market that we saw earlier this year brought the stock down out of overbought territory and put both of the oscillators at their lowest levels since October ’16.
The fundamentals didn’t change, the only thing that changed was the overall view of the market from investors. The stochastics have made a bullish crossover and the last time we saw the readings this low and then crossed, the stock doubled in just over a year.
Suggested strategy: Buy CBOE with a maximum entry price of $130. I would set a target of at least $170 over the next six to nine months (for a potential return of over 35% from current prices). I would suggest a stop loss at the $110 level.
— Rick Pendergraft