- Wondering whether Morningstar at around US$184.28 is starting to look attractive again, or if recent weakness is still baking in too much optimism.
- The share price has moved 9.7% over the past week and 0.6% over the last month, yet the year to date return of 12.4% and 1 year return of 32.9% are both negative. This may catch the eye of investors watching for a potential reset in expectations.
- Recent coverage has focused on how the stock's current level compares with its past performance and what that might mean for sentiment toward information and analytics providers. This context matters because it shapes how investors interpret both the recent short term rebound and the longer term drawdown.
- Morningstar currently holds a valuation score of 3 out of 6. The rest of this article will walk through what that means across different valuation approaches, before finishing with an even more practical way to think about the price you are paying.
Find out why Morningstar's -32.9% return over the last year is lagging behind its peers.
Approach 1: Morningstar Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to generate above the return required by its shareholders, then translates that into a per share value today. Instead of focusing on cash flows, it asks whether the business earns enough on its equity base to justify its price.
For Morningstar, book value is $30.75 per share and the stable book value estimate is $38.41 per share, based on weighted future book value estimates from 2 analysts. Using a median return on equity from the past 5 years, the model arrives at a stable EPS of $6.83 per share. Against a cost of equity of $3.15 per share, this implies an excess return of $3.68 per share, with an average return on equity of 17.78%.
Putting these inputs together, the Excess Returns model suggests an intrinsic value of about $115.44 per share, compared with the recent share price of around $184.28. This implies the stock screens as 59.6% overvalued on this approach.
Result: OVERVALUED
Our Excess Returns analysis suggests Morningstar may be overvalued by 59.6%. Discover 59 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: Morningstar Price vs Earnings
For a profitable company like Morningstar, the P/E ratio is a straightforward way to link what you pay for each share to the earnings that support that price. It lets you see how many dollars of price you are paying for each dollar of current earnings.
What counts as a “normal” P/E depends on how quickly earnings are expected to grow and how risky those earnings look. Higher growth and lower perceived risk usually support a higher P/E, while slower growth or higher uncertainty tend to justify a lower one.
Morningstar currently trades on a P/E of 19.49x. That sits below both the Capital Markets industry average P/E of 41.61x and a peer group average of 24.63x. Simply Wall St also calculates a proprietary “Fair Ratio” of 13.53x for Morningstar, which reflects factors such as its earnings growth profile, industry, profit margins, market value and risk characteristics.
This Fair Ratio can be more informative than a simple comparison with peers or the broad industry, because it is tailored to Morningstar’s own fundamentals rather than relying on broad group averages. Comparing the current P/E of 19.49x with the Fair Ratio of 13.53x suggests the shares are pricing in a richer multiple than the model implies.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Morningstar Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in.
A Narrative is simply the story you believe about a company, translated into numbers like fair value, future revenue, earnings and margins so your view is clear and measurable. On Simply Wall St, Narratives sit in the Community page and link that story to a financial forecast, then to a fair value that you can compare directly with the current share price. Narratives are easy to update when fresh information appears, such as new earnings or news, so your fair value view can change as the facts change rather than staying fixed. For Morningstar, one investor might build a Narrative that supports a much higher fair value than the current price, while another might set a much lower fair value, which shows how different assumptions about growth, profitability and risk can lead to very different conclusions about the same stock.
Do you think there's more to the story for Morningstar? 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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