Morningstar: 4 Reasons Why I Would Buy The Dip

Morningstar (NASDAQ:MORN) shares, despite a 30% decline YTD in 2025, are presented as a compelling "Buy" opportunity due to their high-quality, recurring revenue business model and strong positioning to capitalize on the secular growth of private markets through segments like Pitchbook. The company is expected to achieve significant margin expansion as costs do not scale proportionally with revenue, and its current valuation of 22x FY 2026 EPS is considered attractive relative to its historical average of 41x and projected EPS growth of 15-20% through 2028, despite recent market concerns over broader financial data spending.

Analysis

Despite a significant 30% year-to-date decline in 2025, Morningstar (MORN) presents a clear dislocation between recent market sentiment and its underlying fundamental strengths. The company's business model is anchored by high-quality, license-based recurring revenue from its Morningstar Direct and Pitchbook segments, which boast renewal rates near 100% and have historically generated returns on invested capital (ROIC) between 10-15%. A primary long-term growth catalyst is the firm's strategic exposure to the secular expansion of private markets, a sector whose AUM has tripled over the past decade. This is primarily driven by Pitchbook, which, despite a recent deceleration to 9.6% year-over-year organic revenue growth in Q2 2025, is positioned to benefit from increasing retail and advisor demand for alternative asset data. Furthermore, there is a clear pathway for operating margin expansion from the current 23.7%, as costs are not expected to scale proportionally with revenue growth, and its margin remains below peers like S&P Global and Moody's. The valuation argument is particularly compelling; at 22x FY 2026 consensus EPS, MORN trades at a significant discount to its historical average forward P/E of 41x, while consensus estimates project superior EPS growth (~15-20% annually through 2028) compared to the broader market. The recent sector-wide sell-off, triggered by softer guidance from competitor FactSet, appears to be the primary driver of the stock's current valuation, creating a potential opportunity for investors who believe in the durability of Morningstar's specific growth drivers.

Key Decisions for Investors

• Investors should consider the 30% YTD price correction as a potential entry point, given the stock's valuation has compressed to 22x forward EPS, nearly half its historical average of 41x, while its fundamental growth drivers in private markets remain intact.
• Monitor Pitchbook's organic revenue growth in subsequent quarters; a stabilization or re-acceleration above the recent 9.6% would serve as a key validation of the private markets thesis and could be a catalyst for a stock re-rating.
• The primary risk is a prolonged slowdown in financial data spending, so investors should weigh the potential for higher growth at Morningstar against the more defensive, higher-margin credit ratings businesses of peers like S&P Global and Moody's.
• The investment thesis is heavily reliant on margin expansion and multiple re-rating, therefore, it is critical to track company guidance on operating leverage and cost management in upcoming earnings calls.