Should Investors Reassess Morgan Stanley After Its 58% Rally and Strong Earnings Momentum?

If you’re wondering what to do with Morgan Stanley stock right now—buy, hold, or sell—you’re definitely not alone. The stock has been on a tear, gaining 28.3% so far this year and a massive 58.4% over the past twelve months. Even looking further back, the five-year return hits an eye-popping 292.0%. Last month alone, it climbed 7.2%. Clearly, investors have found plenty to like, whether it's the company’s ongoing resilience amid changing market dynamics or heightened optimism around future growth.

But any savvy investor knows that price momentum alone doesn’t tell the whole story. What really matters is value; are you paying a fair price for Morgan Stanley shares, or is the excitement already baked in? According to our analysis, Morgan Stanley scores a 3 out of 6 on our valuation checklist, meaning it looks undervalued in half of the areas we track. That picture leaves plenty to dig into, especially at a time when market sentiment runs high and the risk landscape is constantly shifting.

Let’s break down what this value score actually means by looking at the different approaches analysts use to judge a stock’s price tag. And before we wrap up, I’ll share an even sharper lens for assessing Morgan Stanley’s real worth—one you’ll want to consider before making your next move.

Morgan Stanley delivered 58.4% returns over the last year. See how this stacks up to the rest of the Capital Markets industry.

Approach 1: Morgan Stanley Excess Returns Analysis

The Excess Returns model helps investors assess a company by comparing how much profit it generates above its required cost of equity capital. This method puts the focus on Morgan Stanley’s ability to earn more from its invested capital than what shareholders could earn elsewhere at a similar risk.

For Morgan Stanley, the numbers paint a clear picture. The company's book value stands at $61.59 per share, while its projected long-term earnings per share (EPS) are $9.89, based on estimates from 12 analysts. The average cost of equity is $6.41 per share, so Morgan Stanley is producing an excess return of $3.48 per share. The average return on equity is a robust 15.05%, and the stable, long-run book value is estimated to reach $65.74, according to data from 14 analysts.

According to the Excess Returns valuation, Morgan Stanley’s intrinsic value is calculated at $117.92 per share. When compared with the current trading price, this model implies the stock is about 35.8% overvalued. In summary, the analysis suggests that, despite Morgan Stanley’s healthy profitability, the current stock price overstates its true underlying worth.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Morgan Stanley.

Our Excess Returns analysis suggests Morgan Stanley may be overvalued by 35.8%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Morgan Stanley Price vs Earnings

The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics for established, profitable companies like Morgan Stanley. It essentially tells investors how much they are paying for each dollar of the company’s earnings, and works best when those earnings are stable and meaningful. Because Morgan Stanley is a consistently profitable firm, the PE ratio offers a straightforward way to gauge whether the stock’s valuation is stretched or reasonable.

The “right” PE ratio depends on factors such as the company’s expected growth, risk profile, and the overall market environment. Faster-growing or less risky companies tend to command higher PE ratios, while lower-growth or riskier companies settle for less. At the moment, Morgan Stanley trades at an 18.1x PE ratio. This is well below the Capital Markets industry average of 27.2x and substantially lower than the peer average of 34.6x. This suggests the market is currently assigning a discount to the stock compared with its sector and direct competitors.

However, simple comparisons can be misleading. That is where Simply Wall St’s proprietary “Fair Ratio” comes in. This figure, set at 20.2x for Morgan Stanley, represents a more tailored benchmark, factoring in the company’s earnings growth, profit margins, industry dynamics, scale, and risks. By using the Fair Ratio, investors get a truer sense of the valuation that best fits Morgan Stanley’s specific situation rather than relying solely on broad averages.

Given that Morgan Stanley’s actual PE ratio (18.1x) is slightly below its Fair Ratio (20.2x), the stock appears to be trading at a modest discount to what would be considered fair value for its unique financial profile. The difference, however, is not dramatic. This suggests the shares are priced about right in today’s market.

Result: ABOUT RIGHT

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

Upgrade Your Decision Making: Choose your Morgan Stanley Narrative

Earlier in this article, we mentioned there is a smarter, more flexible way to make sense of a stock’s value: Narratives. Rather than relying solely on historical data or broad multiples, Narratives let you tell your own story about Morgan Stanley’s future by combining your assumptions on growth, margins, and fair value with your outlook on the business’s direction. This approach connects the company’s big-picture story to a detailed financial forecast, allowing you to see how your perspective translates to a specific fair value per share.

Narratives are designed to be simple and interactive, right on Simply Wall St’s Community page, where millions of investors share and update their views. As new information hits, such as earnings results, major news, or regulatory changes, Narratives update dynamically, helping you make more informed decisions about when to buy or sell by directly comparing your fair value estimate to the actual share price.

For example, some Morgan Stanley investors believe digital platforms and global wealth transfer will supercharge growth, supporting a fair value up to $160 per share, while others see risks from industry disruption and more conservative growth assumptions, setting targets as low as $122. Your Narrative helps you see where you stand and decide what is right for your portfolio.

Do you think there's more to the story for Morgan Stanley? Create your own Narrative to let the Community know!

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.

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