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Growth expectations and risk play a big part in determining what a “normal” or “fair” PE ratio should be. Firms with stronger expected earnings growth or lower risk often command higher PE multiples, while those with slower growth or greater uncertainty typically trade at lower levels.

Nasdaq currently trades at a PE ratio of 30.8x, which is just below the peer average of 31.9x and significantly higher than the Capital Markets industry average of 23.6x. However, using Simply Wall St’s proprietary “Fair Ratio” model, which accounts for Nasdaq’s growth prospects, profitability, industry, market cap, and unique risk profile, the fair PE ratio for Nasdaq is calculated at 16.0x. Unlike mere comparisons with peers and the broader industry, the Fair Ratio aims to provide a more nuanced view, reflecting the company’s true fundamentals and risk-adjusted outlook.

Since Nasdaq’s actual PE multiple is well above its Fair Ratio, this approach suggests the stock may be priced higher than its underlying performance warrants.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1422 companies where insiders are betting big on explosive growth.

Earlier, we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a simple yet powerful approach that lets you apply your own story or perspective to a company, connecting your view about future revenue, earnings, and margins to a financial forecast and ultimately a fair value estimate.

Narratives help you link the reasons behind Nasdaq’s recent developments, such as new products, partnerships, or regulatory changes, directly to numbers and fair value. This means your investment decisions are not just about ratios but the company’s actual journey and what you believe will happen next.

This tool is accessible to everyone on Simply Wall St’s Community page, where millions of investors already create and track Narratives tailored to their conviction and research. Narratives automatically update as new earnings reports or news come out, making your view always up to date and allowing you to quickly see if the price still matches your expectations.

For example, the most optimistic Narrative values Nasdaq at $115.00, believing that international growth and tech expansion will drive substantial earnings, while a cautious Narrative pegs it at $74.00, expecting competitive pressure to keep margins and revenue under pressure. Both use the same data, but different stories and forecasts.

Do you think there’s more to the story for Nasdaq? 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.

Companies discussed in this article include NDAQ.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com