$SPGI · Everything Money · 2026-11-02

First, a stock that analysts recommend buying. S&P Global. You may not know the name, but you certainly know her work. It is the company behind the famous S&P 500 index, and one of the world's largest providers of credit ratings and financial data.

Its stock has fallen by about 8% this year, partly due to it spinning off one of its businesses and selling its shares to its new owners. Therefore, the company's true performance is better than this number alone suggests.

Here's S&P Global today. S&P Global has a very strong competitive advantage. When a company wants to borrow money by issuing bonds, it often needs a credit rating, and Standard & Poor's is one of the few trusted names that provide these ratings.

Furthermore, Standard & Poor's receives a nominal fee each time an investment product is constructed based on the Standard & Poor's 500 index, and with trillions of dollars tied up in this index, Standard & Poor's becomes a hidden gateway for collecting fees from the entire market, wherever it goes.

It is a highly profitable and replicable business model. In fact, it is really four business models in one: credit ratings, financial data and analytics, stock market indices, and energy and commodities information.

Therefore, it generates profits from various sectors of the financial world simultaneously.

Once a bank or investor relies on Standard & Poor's data in their day-to-day operations, switching to another source becomes extremely difficult.

Now, here's something many people overlook: a business model like this doesn't need a lot of capital to grow; it doesn't need factories or warehouses. It's just data, people, and a trusted name.

Therefore, a large portion of what it earns can ultimately return to its owners due to the low capital required to operate it.

Now, what is the negative viewpoint? Well, its activity in the field of credit rating is affected by the size of corporate debt. Therefore, high interest rates can significantly slow its growth.

Over time, the emergence of AI-powered data providers at lower prices may reduce its ability to set prices. However, replacing a trusted credit rating agency is not something the financial world is rushing into.

So, let's analyze the numbers and see if the analysts are right. Remember, guys, when it comes to the price of a company, I don't look at the stock price on the stock exchange, I look at the market capitalization.

The price of this company is $134 billion. This amount is enough to buy all the shares in the entire market.

Next, look at the value of the organization. So, the market capitalization is $134 billion, and the value of the enterprise is $156 billion. This difference of $22 billion represents their net debt.

It may seem like a large amount, but we need to compare it to the cash flow. Last year's cash flow was $5.5 billion, while the five-year average was $4 billion. So, the situation isn't too bad.

The company is selling for about four times its free cash flow for last year. This includes all debts, including the use of cash to repay them. So, it seems they can reasonably afford this debt.

Later in this section, we will see a comparison between their long-term debt and their cash flow. Next, we move on to return on capital. The return over five years is 15%, while it is only 8% over one year.

This raises the question: why is it decreasing in this way? This depends on operating income, so their operating income may have decreased.

Finally, the company is sold for approximately 24 times its free cash flow and 27 times its earnings. So, their free cash flow last year and over the past five years has been higher than their net income, which pleases me.

It is a rare occurrence. However, the ratios of 24 and 27 seem a bit high. This does not mean that the stock price is overpriced. Remember, relying on just one number or one indicator is not enough to judge the quality of a stock.

If this company can increase its cash flow by 30 or 40% annually for several years, the share price will be low. But that is the question we need to answer.

As for profit, the annual profit margin is approximately 30.5%. The profit margin for ten years is 29.5%, and for five years it is 28%. Therefore, the ratio appears to be stable in the late twenties.

This pleases me, but what really impresses me is the high gross profit margin of 71%.

Now, what puzzles me is what comes next. This high gross profit means that every additional dollar of revenue will have a significant portion converted into profit. But, with such a high figure, why doesn't the profit margin continue to rise as revenues continue to grow?

Because their revenues are rising very steadily. Very consistently. So, I'm a little confused about all this.

For those who like dividends, it distributes about 0.9% of profits, which consumes only $1 billion of their cash flow. Members of our community recommend buying shares of this company right now.

Let's take a look at the eight pillars. Okay, here are the eight pillars. We have an X mark at the five-year free cash flow figure, which we discussed, but everything else is correct.

They are buying back shares here. Remember, buying back shares that people like doesn't necessarily mean it's a good thing if they're paying an inflated price. This is something many people overlook when it comes to share buybacks. It is only good if the stocks are undervalued.

Now let's see what the analysts think about this company. Analysts currently expect earnings per share this year to be around $18, and to grow to $27 over the next four years. So, there is good double-digit growth overall.

As for revenues, they are largely stable, but slow. It has decreased by 3% this year, 5%, 7%, 5.5%, and 5.3%. As we mentioned earlier, interest rates are rising. Therefore, if companies borrow less, their business volume will decrease.

If you believe the stock market is overvalued, a sharp market decline over the next three or four years could negatively impact revenues.

In fact, to illustrate the point, let's go back to the era of internet companies (dot-coms) in the years 1996, 1997, 1998, 1999, 2000, 2001. Look how their revenues skyrocketed, by more than 40% in just four years, and then experienced a brief period of stagnation.

The growth wasn't as rapid, but it was still ongoing.

So, we have some information and figures. Our task now is to make assumptions about the company, and then determine the appropriate price to pay without looking at the balance sheet.

Here I have conducted a ten-year analysis of the S&P Global Index. First, I assumed revenue growth of 3%, 5% and 7% annually. These are not large percentages. Secondly, I will focus here on free cash flow, while maintaining a fixed profit margin.

I like the high free cash flow. Therefore, I set a profit margin and free cash flow of 30%, 32% and 34%.

The next question is, what is the price-to-earnings (P/E) ratio and the price-to-free cash flow ratio that I would allocate to this company after 10 years? Well, there are some questions that need to be asked.

Do they have significant growth potential? not really. Do they have a sustainable competitive advantage? I would say they have a very large, sustainable competitive advantage. The S&P 500 index, and the S&P Global index in general, is a great sustainable competitive advantage.

Do they have good returns on capital? Yes, they do have them, but they are declining, but they recently gave up one of their businesses, so that may be part of the reason why their operating income has decreased.

So, what price-to-earnings ratio would I assign to this company compared to the S&P 500? I don't care about the current price-to-earnings ratio. What interests me is that the historical average for the S&P index is between 15 and 17.

Is this company better or worse than the average of companies in the S&P index? I think it's better.

Now, before I write 14, 18 and 22, I will change this. I will choose 15, 19, 15, 18, and 21. Finally, what return am I aiming for? Now, my friends, for the purpose of education, I want to explain to you the value of this business activity.

Therefore, I entered the historical market return of 9.5%. Remember, this is not the price I am willing to pay, nor the return I am hoping for. I always advise people, and this is my opinion, that if you want to buy an individual stock, you need a return that is higher than the market return.

Otherwise, we will simply buy a low-cost S&P 500 index exchange-traded fund and invest in it. Why waste all this trouble and time buying shares in an individual company?

Therefore, I entered a return of 9.5% with no safety margin. Then I pressed the analyze button. The stock price is 453. I have a low price of 240, a high price of 460, and an average price of 335.

What does this mean? Well, if our average expectations are met, I will achieve a discounted cash return of approximately 5.5%. If my lower expectations are met, the return will be around 1.2%.

If my higher expectations are met, I will achieve a return of 9.6%.

So, you have to ask yourself: Is it worth risking a 9.6% return based on my best-case scenario? Of course, you have to do the calculations yourself. We have also added a feature here that will show you, based on your projections, the expected revenue and profits after 10 years.

So, this is one way to form an idea of what seems realistic or unrealistic, because many people invest 30% of their money, then discover that after 10 years the company should be achieving sales ten times greater, and this is unrealistic.