Morningstar (MORN) has stepped up its AI push by rolling out new integrations with Microsoft 365 Copilot and related tools, while also forming fresh partnerships in CLO indexing and public and private model portfolios.

The 1 day share price return of 9.03% to US$154.65 comes after a tougher stretch, with the 30 day share price return down 15.04% and the year to date share price return down 26.50%. The 1 year total shareholder return is down 50.30%, suggesting recent excitement around Morningstar’s AI and index initiatives is emerging against a weaker longer term trend.

If Morningstar’s AI push has your attention, it could be a good moment to broaden your research and check out 61 profitable AI stocks that aren't just burning cash

With Morningstar’s shares rebounding on AI headlines but still showing weaker multi year returns, the key question is whether today’s price reflects an undervalued research and data franchise or if the market is already baking in future growth.

Price-to-Earnings of 14.6x: Is it justified?

Morningstar is trading on a P/E of 14.6x, which sits below both the broader US market and the US Capital Markets industry. This suggests the stock is priced more cautiously than many peers despite its AI headlines.

The P/E ratio compares the current share price to earnings per share and is a common way to see how much investors are paying for a company’s profits. For a research, data and platforms business like Morningstar, this multiple often reflects how confident the market is that earnings can grow steadily from this point.

Here, the current 14.6x P/E is below the US market P/E of 19.1x and also below the US Capital Markets industry average of 39.6x. It also sits very close to the estimated fair P/E of 14.7x from the SWS model. Taken together, this points to a valuation that is not stretched compared with peers and is closely aligned with where the model suggests the multiple could reasonably settle over time.

Result: Price-to-Earnings of 14.6x (ABOUT RIGHT)

However, Morningstar’s weaker 1 year and multi year returns, along with the wide gap between the current share price and the analyst price target, could keep sentiment fragile.

Another View: Our DCF Model Flags a Richer Price

While Morningstar’s 14.6x P/E looks roughly in line with its fair ratio, the SWS DCF model tells a different story. On this measure, the stock at $154.65 sits above an estimated fair value of $133.58, which points to a market price that runs ahead of modeled cash flows. For you, the puzzle is whether earnings quality and AI momentum justify paying that premium.

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 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Uncertain whether Morningstar’s AI story and current valuation leave more room for upside or downside, especially with both risks and rewards in play? Act quickly, review the underlying data, and then weigh up the 5 key rewards and 2 important warning signs.

Looking for more Morningstar style investment ideas?

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• Target potential mispricings by scanning companies that pair quality fundamentals with attractive valuations through the 44 high quality undervalued stocks.
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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.