Morningstar Inc. is a leading provider of independent investment insights and the fourth biggest credit rating agency behind S&P Global, Moody’s and Fitch. Consulting companies boast great financials, characterized by high margins, low capex needs and little-to-no debt. Morningstar is no exception and its latest earnings report visualizes all of the above.
The stock is down 58% since December, 2024, however. In our opinion, the biggest reason for this sell-off was not the company itself, but the high valuation fourteen months ago. Paying over 30 times forward earnings is a risky move and this crash is what happens when that risk eventually materializes. Now that Morningstar trades at less than half that at a forward P/E under 15, is the stock poised for a turnaround?
The chart above seems to be pointing towards such a conclusion. It reveals that the stock’s entire uptrend since before the 2008 crisis has taken the shape of an Elliott Wave cycle. Its impulsive phase is marked I-II-III-IV-V, where two lower degrees of the trend are visible within wave III. The following sharp sell-off, which is still in progress, should then be the three-wave correction, which naturally follows every impulse.
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If this count is correct, the support near $120 could witness the end of wave C and the start of Morningstar’s next big bull run. Provided that the company continues its profitable growth, long-term investors have every reason to aim for targets near $400 and above in the years ahead.
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