Assessing MSCI After Recent 8% Rally and Five Year Performance Surge

If you are eyeing MSCI and wondering whether to add it to your portfolio, you are not alone. The stock has had its share of twists and turns lately. In just the last month, MSCI shares climbed over 8%, a move that may have caught the attention of growth-oriented investors. Even with some choppy action earlier this year, as shown by its recent year-to-date decline of almost 4%, the company’s long-term run remains impressive, with a five-year return topping 61%. Clearly, the broader market still has faith in MSCI’s growth engine.

What is behind this mix of near-term volatility and longer-term confidence? The company’s annual revenue and net income growth are strong, both in the high single to low double digits, which often signals steady demand for MSCI’s data and analytics products. The broader financial sector has been caught between rate moves and market uncertainty, but investors watching MSCI seem encouraged by its resilience and optimism for structural tailwinds in global indexing and analytics services.

But when it comes to deciding if MSCI is truly a bargain at its current price of just under $575, the story gets more nuanced. According to a standard valuation scorecard, MSCI currently earns just a 1 out of 6, indicating the company is undervalued in only one area. That may sound underwhelming if you are looking for a classic value play, but the real story goes deeper. Next, we will break down how different valuation methods stack up for MSCI, and I will share a more insightful framework for understanding the company’s worth that could make you see its price tag in a new light.

MSCI delivered 1.9% returns over the last year. See how this stacks up to the rest of the Capital Markets industry.

Approach 1: MSCI Cash Flows

A Discounted Cash Flow (DCF) model seeks to estimate a company’s true worth by forecasting its future free cash flows and then discounting those values back to today’s dollars. It is a favored valuation method because it focuses on real cash generation potential, rather than just reported profits.

MSCI’s latest twelve months free cash flow stands at approximately $1.37 billion. Forward-looking evaluations anticipate steady growth in these cash flows, reaching an estimated $2.84 billion per year by 2035. By combining analyst projections and reasonable growth assumptions, the DCF analysis for MSCI calculates an intrinsic value of about $517 per share. This is compared to a recent trading price just under $575.

This means MSCI is currently about 11.2% overvalued according to the DCF model. While free cash flow growth is healthy, the current share price reflects optimism above what the cash flow projections support at today’s rates.

Result: OVERVALUED

Our DCF analysis suggests MSCI may be overvalued by 11.2%. Find undervalued stocks based on DCF analysis or create your own screener to find better value opportunities.

Approach 2: MSCI Price vs Earnings

The Price-to-Earnings (PE) ratio is widely favored for evaluating profitable companies because it links the market price directly to earnings power, giving investors a straightforward way to gauge how much they are paying for each dollar of profit. A company with consistently strong profits, like MSCI, often commands a higher PE ratio given its proven ability to generate earnings.

However, what counts as a “normal” or “fair” PE ratio varies based on expectations for future growth, industry trends, and the level of risk investors are willing to accept. Companies with higher expected growth or defensive qualities typically justify a premium. In contrast, greater risk or a slowing outlook can bring the PE ratio closer to average market levels.

MSCI currently trades at a PE ratio of 37.7x. This is above the industry average for Capital Markets at 27.1x and is slightly lower than the average among its peers, which stands at 39.3x. Looking at the Fair Ratio, a proprietary benchmark that considers MSCI’s earnings growth, sector, margins, and risks, Simply Wall St estimates it at 17.3x. When comparing the current PE of 37.7x to this fair level, MSCI appears priced well above what its fundamental profile supports. This suggests investors are already paying a premium for its growth prospects and quality, rather than receiving a value opportunity based on earnings multiples.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your MSCI Narrative

Rather than relying on a single set of numbers or ratios, Narratives provide a way for investors to attach a story that reflects their own perspective on MSCI’s future to the numbers behind a fair value estimate. This approach connects what investors believe about the company’s growth, risks, and profit trends with their financial forecasts.

This method bridges the gap between MSCI’s business story and its valuation by translating personal views on factors such as revenue growth, profit margins, and industry trends into an actionable fair value. It makes it much easier to understand not just what the company might be worth, but also the reasoning behind that assessment.

On Simply Wall St, Narratives are accessible to everyone. Users can see, create, and compare scenarios with millions of other investors, quickly spotting when their view of MSCI’s fair value aligns with or differs from the market price.

Since Narratives are updated automatically whenever new news or earnings are released, they let investors see in real time how their perspective compares to the market price. This makes it easier to identify when there may be an opportunity based on these changing conditions.

For example, some users see MSCI as worth up to $700 due to an optimistic outlook on global ETF demand and ESG trends. Others are more cautious, with a $520 target that reflects concerns about fee compression and increased competition.

Do you think there's more to the story for MSCI? 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.

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