When Morningstar Inc’s (NASDAQ:MORN) announced its latest earnings (31 December 2017), I wanted to understand how these figures stacked up against its past performance. The two benchmarks I used were Morningstar’s average earnings over the past couple of years, and its industry performance. These are useful yardsticks to help me gauge whether or not MORN actually performed well. Below is a quick commentary on how I see MORN has performed. See our latest analysis for Morningstar

Was MORN weak performance lately part of a long-term decline?

I look at data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This enables me to assess different companies on a more comparable basis, using the most relevant data points. For Morningstar, its most recent trailing-twelve-month earnings is US$136.90M, which, against last year’s figure, has declined by -14.97%. Given that these values are fairly myopic, I have determined an annualized five-year figure for MORN’s net income, which stands at US$116.70M This shows that despite the fact that earnings growth was negative against the prior year, over time, Morningstar’s profits have been rising on average.

How has it been able to do this? Well, let’s take a look at if it is solely attributable to an industry uplift, or if Morningstar has experienced some company-specific growth. Over the last few years, Morningstar grew its bottom line faster than revenue by successfully controlling its costs. This has led to a margin expansion and profitability over time. Scanning growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 14.59% over the previous twelve months, and 10.90% over the last five years. This shows that whatever tailwind the industry is benefiting from, Morningstar has not been able to leverage it as much as its industry peers.

What does this mean?

Though Morningstar’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors affecting its business. You should continue to research Morningstar to get a more holistic view of the stock by looking at:

• 1. Financial Health: Is MORN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

• 2. Valuation: What is MORN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MORN is currently mispriced by the market.

• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.