A Fresh Look at Morningstar (MORN) Valuation After Beating Revenue Estimates and Showcasing Platform Strength

Morningstar (MORN) just delivered quarterly results that topped revenue expectations, driven by strong performances from its credit business, PitchBook, and Morningstar Direct. Investor sentiment has been reinvigorated even as industrywide AI concerns persist.

See our latest analysis for Morningstar.

Morningstar’s stock has had a bumpy ride this year, slipping more than 37% on a share price basis since January as concerns about AI disruption cooled sentiment across information services stocks. Even so, investors are starting to look beyond the tech headwinds and are focusing on the company’s 8.4% annual revenue growth and the resilience shown by its credit and platform businesses, which could signal improving momentum ahead.

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With shares trading well below recent highs and revenue and margins showing strength, is Morningstar undervalued and offering investors a rare entry point, or is the market already accounting for its long-term growth outlook?

Price-to-Earnings of 22.9x: Is it justified?

Morningstar’s stock is trading at a price-to-earnings ratio of 22.9 times, which positions it attractively compared to its closest industry peers but also raises questions about underlying earnings strength.

The price-to-earnings (P/E) ratio reflects how much investors are willing to pay today for a dollar of earnings, serving as a quick gauge of valuation in established companies with stable profits. For Morningstar, a diversified financials company with a track record of earnings growth, the P/E ratio holds particular weight as a signal of market expectations for future performance.

While Morningstar’s P/E sits below both the US Capital Markets industry average (23.9x) and the peer average (27x), it is notably higher than the company’s estimated fair P/E (14x). This suggests investors may be assigning a premium for its recent profit growth and strong returns. This P/E ratio could also indicate that the current level is susceptible to mean reversion if growth slows.

The gap between Morningstar’s current P/E and its fair ratio highlights a tension. If the market moves toward the fair ratio, the current valuation may face downward pressure unless the company delivers even stronger earnings or surprises to the upside.

Explore the SWS fair ratio for Morningstar

Result: Price-to-Earnings of 22.9x (ABOUT RIGHT)

However, continued share price volatility and persistent concerns about AI disruption could hinder any potential near-term upside in Morningstar’s valuation story.

Find out about the key risks to this Morningstar narrative.

Another View: Discounted Cash Flow Model Paints a Different Picture

While the price-to-earnings ratio suggests Morningstar shares appear attractively valued compared to peers, our DCF model tells a different story. According to this approach, the stock trades well above its estimated fair value, which implies it may be overvalued unless growth far exceeds current forecasts. Which method is the better guide for investors?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Morningstar for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 915 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Morningstar Narrative

If you see the outlook differently or want to dive deeper into the numbers, you can easily build your own perspective in just a few minutes. Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Morningstar.

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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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