TMX Group’s 4.6% Surge: Does Recent Industry Momentum Support the Current Share Price?

• Wondering if TMX Group is really a buy at today's price? You're not alone. Let's make sense of whether its investment case is built on more than recent market hype.
• The stock has captured attention with a 4.6% move in the last month, and it stands out with an 18.9% return over the past year and a 127.7% gain over the last five years.
• Recently, industry momentum has been in the spotlight, with TMX Group benefiting from renewed investor interest in Canadian financial infrastructure and ongoing innovation in digital assets and market services. Regulatory developments and partnerships reported over the past quarter are also shaping sentiment and signaling TMX's evolving role in capital markets.
• When you look at the numbers, TMX Group scores a 2 out of 6 on our valuation checks, so there is plenty to unpack in the different ways its value can be assessed. At the end, we will introduce a more insightful approach to cut through the noise.

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

Approach 1: TMX Group Excess Returns Analysis

The Excess Returns model assesses how efficiently TMX Group turns its equity into profit, focusing on the returns generated above the company’s cost of equity. Rather than just looking at earnings or dividends, this approach measures the "excess" profit, which is the additional value shareholders get after accounting for the cost of capital invested in the business.

For TMX Group, the latest data shows a Book Value of CA$17.02 per share, with a Stable Earnings Per Share (EPS) of CA$2.25. These stable figures are built from future return on equity estimates averaged by four analysts. The company’s required Cost of Equity stands at CA$1.36 per share, resulting in an Excess Return of CA$0.88 per share. TMX’s average Return on Equity is a notable 12.28%, and its projected stable Book Value is CA$18.29 per share, highlighting anticipated incremental growth for shareholders in coming years.

Applying this model, TMX Group’s intrinsic value is estimated at CA$37.12 per share. At current prices, the stock is trading around 38.9% above this fair value, suggesting the market price is running well ahead of the company’s underlying returns.

Result: OVERVALUED

Our Excess Returns analysis suggests TMX Group may be overvalued by 38.9%. Discover 923 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for TMX Group.

Approach 2: TMX Group Price vs Earnings

The Price-to-Earnings (PE) ratio is often the go-to valuation measure for profitable companies like TMX Group because it relates a company's current share price to its earnings per share. This makes it a practical way for investors to gauge how much they are paying for every dollar of profit, especially when the business has a reliable track record of earnings and growth.

Interpreting the PE ratio is not just about the number itself. Higher-than-average growth prospects or lower risk typically justify a higher PE, while slower growth or greater uncertainties would call for a lower rating. For TMX Group, the current PE stands at 31.19x. This is notably above the broader Capital Markets industry average of 9.67x and just below its peer group average of 32.39x, reflecting the market's high expectations for TMX’s stability and potential.

To provide perspective beyond simple industry or peer averages, Simply Wall St’s proprietary “Fair Ratio” offers another viewpoint. It recalibrates what a fair PE should look like for TMX Group after factoring in not just growth and profitability but also the company’s actual risks, its size, and what is typical for this class of business. For TMX Group, the Fair Ratio stands at 20.93x, which is substantially below the current PE. This means the stock trades at a premium compared to what would be considered a balanced price in view of all key fundamentals, not just surface-level comparisons.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1424 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your TMX Group Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal, evidence-backed story about a company. Here, you connect what you believe about TMX Group’s future with your own numbers for its revenue growth, profit margins, and fair value. This means adding your perspective behind the forecasts.

Narratives make sense of the numbers by linking a company's qualitative story to a financial forecast and, from there, to an actionable fair value estimate. Rather than just accept market hype or consensus targets, Narratives invite you to use your own reasoning. You can tie together news, investor updates, or earnings events with updated valuations, all in one place.

This approach is featured on Simply Wall St’s Community page, empowering millions of investors with a simple, accessible way to create, refine, and share their Narrative as conditions change. When new information comes out, Narratives and their fair values update dynamically, helping you continually compare your estimated Fair Value with the current share price and decide if it’s time to buy, hold, or sell.

For example, one TMX Group Narrative might assume robust international expansion and assign a fair value of CA$62.50. Another, more cautious view might estimate a fair value closer to CA$41.30. This demonstrates that every investor's story, and resulting decisions, can differ.

For TMX Group, we'll make it really easy for you with previews of two leading TMX Group Narratives:

• 🐂 TMX Group Bull Case

  Fair Value: CA$62.50

  Current Price is 17.5% below this narrative's fair value

  Expected Revenue Growth: 7.0%

  • Analyst consensus expects robust growth driven by international acquisitions, recurring digital/data revenues, and modernization of trading infrastructure and digital assets platforms.
  • Earnings per share are forecast to rise as profit margins expand and recurring revenues increase. Catalysts include international listings, new product launches, and higher ETF activity.
  • Key risks include intensifying global competition, shifts towards private funding, and disruptive technology like tokenized assets possibly eroding traditional revenue streams.
• 🐻 TMX Group Bear Case

  Fair Value: CA$49.90

  Current Price is 3.3% above this narrative's fair value

  Expected Revenue Growth: 7.0%

  • TMX benefits from a stable, high-margin business with strong recurring data and analytics revenues, a wide economic moat, and prudent capital allocation by management.
  • At current prices, TMX trades roughly at fair value based on its long-term growth and profit assumptions, offering predictable but unspectacular returns for long-term investors.
  • Cyclical risks such as trading volume and IPO activity, possible integration setbacks in acquired businesses, and ongoing competition and regulatory pressures temper the short-term upside. A pullback into the low $40s would offer a more attractive entry point.

Do you think there's more to the story for TMX 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.

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