Morningstar (MORN): Evaluating Valuation After Recent Share Price Decline

Morningstar (MORN) shares have continued to slide in recent weeks. The stock is down nearly 27% over the past 3 months. Investors are watching for signs of stabilization as the diversified financial firm navigates a challenging market environment.

See our latest analysis for Morningstar.

While Morningstar’s share price has slipped over the past few months, this follows a longer period where overall momentum has slowed. The latest drift puts its 1-year total shareholder return slightly negative and 5-year total returns firmly positive, suggesting long-term holders have still come out ahead even as recent sentiment cools.

If you’re rethinking your portfolio mix as momentum shifts, now is a smart time to broaden your outlook and discover fast growing stocks with high insider ownership

With shares trading well below analyst price targets and recent results showing steady, if unspectacular, growth, the key question is whether Morningstar presents an undervalued opportunity now or if the market has already priced in its future potential.

Price-to-Earnings of 23.6x: Is it justified?

Morningstar’s shares trade at a price-to-earnings ratio of 23.6x, which positions the stock below both its industry and peer group averages, but above a model-determined fair ratio.

The price-to-earnings (P/E) multiple is a standard measure of how much investors are willing to pay for every dollar of a company’s earnings. In capital markets, this ratio signals how the market currently values future profit streams, relative to the company’s actual earnings power.

Morningstar’s P/E of 23.6x is notably lower than the U.S. Capital Markets industry average of 26.2x and the peer average of 29.1x, suggesting a relative discount. However, this is still well above an estimated fair P/E ratio of 15.2x. The market could revert toward this level if sentiment shifts or earnings growth slows. This gap may reflect the expectation that Morningstar’s steady but unspectacular earnings growth will not outpace its peers or the broader market.

Explore the SWS fair ratio for Morningstar

Result: Price-to-Earnings of 23.6x (ABOUT RIGHT)

However, slowing revenue and net income growth, along with negative one-year returns, could prompt deeper market skepticism if financial results disappoint further.

Find out about the key risks to this Morningstar narrative.

Another View: Discounted Cash Flow Tells a Different Story

Taking a step back from earnings multiples, our SWS DCF model points to a fair value of $98.88 for Morningstar. This is well below the current share price of $226.12. This suggests that, based on long-term cash flows, the stock could be significantly overvalued right now. Does this mean the market is too optimistic, or are there factors the model might miss?

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 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 story differently, or want to dive into the numbers yourself, you can build your own narrative in just a few minutes. Do it your way

A great starting point for your Morningstar research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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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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