Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0790
    -0.0003 (-0.03%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • dólar/libra

    1.2618
    -0.0004 (-0.03%)
     
  • USD/JPY

    151.3210
    -0.0510 (-0.03%)
     
  • Bitcoin USD

    70,057.27
    -461.38 (-0.65%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

Morningstar Stock Appears To Be Modestly Overvalued

- By GF Value

The stock of Morningstar (NAS:MORN, 30-year Financials) is estimated to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $232.41 per share and the market cap of $10 billion, Morningstar stock is believed to be modestly overvalued. GF Value for Morningstar is shown in the chart below.


Morningstar Stock Appears To Be Modestly Overvalued
Morningstar Stock Appears To Be Modestly Overvalued

Because Morningstar is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 14.9% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Morningstar has a cash-to-debt ratio of 0.74, which which ranks worse than 75% of the companies in Capital Markets industry. The overall financial strength of Morningstar is 6 out of 10, which indicates that the financial strength of Morningstar is fair. This is the debt and cash of Morningstar over the past years:

Morningstar Stock Appears To Be Modestly Overvalued
Morningstar Stock Appears To Be Modestly Overvalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Morningstar has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and earnings of $5.17 a share. Its operating margin is 15.49%, which ranks in the middle range of the companies in Capital Markets industry. Overall, the profitability of Morningstar is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Morningstar over the past years:

Morningstar Stock Appears To Be Modestly Overvalued
Morningstar Stock Appears To Be Modestly Overvalued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Morningstar is 14.9%, which ranks better than 74% of the companies in Capital Markets industry. The 3-year average EBITDA growth is 18.3%, which ranks in the middle range of the companies in Capital Markets industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Morningstar's ROIC is 7.41 while its WACC came in at 7.56. The historical ROIC vs WACC comparison of Morningstar is shown below:

Morningstar Stock Appears To Be Modestly Overvalued
Morningstar Stock Appears To Be Modestly Overvalued

Overall, the stock of Morningstar (NAS:MORN, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Capital Markets industry. To learn more about Morningstar stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

Advertisement