Goldman Sachs Group, Inc. (GS), Facebook Inc (FB): Is NASDAQ OMX Group, Inc. (NDAQ) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for

The graphs you’re about to see tell NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)’s story, and we’ll be grading the quality of that story in several ways:

1). Growth: Are profits, margins, and free cash flow all increasing?
2). Valuation: Is share price growing in line with earnings per share?
3). Opportunities: Is return on equity increasing while debt to equity declines?
4). Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you

Now, let’s take a look at NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)’s key statistics:

NDAQ Total Return Price data by YCharts.

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	(7%)	Fail
Improving profit margin	26.2%	Pass
Free cash flow growth > Net income growth	(17.5%) vs. 17.3%	Fail
Improving EPS	47.3%	Pass
Stock growth (+ 15%) < EPS growth	73.4% vs. 47.3%	Fail

Source: YCharts. *Period begins at end of Q2 2010.

NDAQ Return on Equity data by YCharts.

Passing Criteria	3-Year* Change	Grade
Improving return on equity	6.7%	Pass
Declining debt to equity	8.4%	Fail
Dividend growth > 25%	Initiated in 2012	Pass
Free cash flow payout ratio < 50%	20%	Pass

Source: YCharts. *Period begins at end of Q2 2010.

How we got here, and where we’re going

NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) doesn’t come through with a flawless performance, but it did earn five out of nine possible passing grades. One failing grade only occurred because the net income has grown while free cash flow has fallen during our tracked period; however, Nasdaq’s nominal free cash flow is actually higher than its net income. Nasdaq would have earned another passing grade if its share price had not taken off well in advance of its fundamental improvements. Can Nasdaq fix its weaknesses for our next review? Let’s take a look at what the company’s been doing to improve.