Morningstar stock price had a strong performance in 2024 as it surged to a record high of $364 following several quarters of strong revenue growth. It has then suffered a big reversal, plunging by over 11.5% from its highest level last year. So, will the MORN shares continue falling or will they rebound this year?
Morningstar business is growing
Morningstar has become one of the biggest companies in the financial services industry in the United States with a market cap of over $14 billion.
It is a company that provides data and analytics solutions, wealth and retirement, and credit rating solutions. This makes its services highly diversified, which helps the different segments offset each other over time.
Its credit ratings business, known as DBRS, provides credit rating solutions to companies and countries, making it a smaller competitor to Moody’s, S&P Global, and Fitch. Morningstar also owns Pitchbook, a company that provides financing data.
Morningstar’s business has been growing in the past few years as its annual revenue rose from $1.1 billion in 2019 to over $2.2 billion in the trailing twelve months (TTM). That growth was mostly organic and through some strategic investments.
The most recent results showed that Morningstar’s quarterly revenue rose by 10.5% to $569 million, while its operating income jumped to $115 million. These numbers show that the company’s top and bottom lines performed well, as its operating margin rose from 13.6% to 20.3% during the quarter.
Cost efficiencies has helped Morningstar to grow its profits. One way this happened is through job reductions as its total workforce dropped from over 12,000 in Q1’23 to slightly above 11,000 last quarter.
Overall, its business performed well. The data analytics division made $198.5 million, with Morningstar Direct rising by 11%. Pitchbook’s revenue rose by 12.2% to $156 million, while Morningstar’s credit grew by 34% during the quarter.
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Major challenges remain
Still, analysts believe that Morningstar faces more growth challenges ahead. The average estimate is that Morningstar’s annual revenue will grow by 11% this year to $2.26 billion. After that, analysts see a more modest growth of 8.22% this year, and possibly 5% in the next financial year.
Morningstar’s key challenge is that the core parts of its business are not growing fast enough and competition is a big challenge. For example, its Pitchbook business may see strong competition from Prequin, which Blackrock acquired in 2024.
The other big challenge is that Morningstar is valued as a growth company when it is not growing as fast. It has a market cap of almost $14 billion and a forward price-to-earnings ratio of 41 and an EV to EBITDA metric of 21.
These are tech-like valuations. For example, Microsoft, a company that almost runs the world, has a forward P/E ratio of 34.8. Alphabet, the parent company of Google, YouTube, and Google Cloud, has a multiple of 25. As such, it is hard to justify this elevated Morningsta’s valuation.
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Morningstar stock price analysis
MORN stock chart: Source: TradingView
The daily chart shows that the MORN share price has crashed in the past few weeks. It has dropped below the lower side of the ascending channel. Also, it has moved below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears are prevailing.
The Relative Strength Index (RSI) has dropped below the oversold level, while the two lines and the histogram of the MACD have moved below the zero line. Therefore, the stock will likely have a strong bearish breakdown in the next few weeks as traders target the key support at $300, its lowest level on September 11.
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