The Morningstar Star Rating for stocks provides investors with a daily updated, single-point rating system. This rating, ranging from 1 to 5 stars, reflects an analyst’s opinion on a stock’s fair value relative to its current market price. A 5-star rating suggests the stock is undervalued, while a 1-star rating indicates overvaluation. The rating is based on four key factors: the company’s economic moat, the estimated fair value of the stock, the uncertainty surrounding that estimate, and the current market price. The goal is for the market price to converge with the fair value estimate within three years, assuming the underlying assumptions hold true.
The Quantitative Fair Value Estimate, calculated daily, represents Morningstar’s estimate of a company’s equity worth per share. This estimate utilizes a statistical model derived from analysts’ fair value estimates, incorporating financial forecasts. While providing valuable insights, it’s crucial to remember that this is a projection, not a guaranteed outcome. Market fluctuations and unforeseen circumstances can significantly impact actual results.
Beyond star ratings, Morningstar offers the Medalist Rating, a forward-looking assessment of investment strategies. This rating employs a scale of Gold, Silver, Bronze, Neutral, and Negative, indicating the potential for outperforming relevant benchmarks on a risk-adjusted basis. The rating relies on three pillars: People, Parent, and Process, combined with a fee assessment. These pillars, graded from Low to High, reflect qualitative analyst assessments or algorithmic evaluations.
The Medalist Rating is assigned and monitored by analysts, with regular reviews at least every 14 months for directly covered vehicles. For indirectly covered or algorithmically assessed vehicles, ratings are updated monthly. These ratings are categorized based on the Morningstar Category and the investment strategy’s active or passive nature.
It’s essential to understand that the Medalist Rating is not a statement of fact or a credit/risk rating. Investors should consider it as one factor among many when making investment decisions. The rating is subject to change based on underlying factors and should not be interpreted as a guarantee of future performance or a recommendation to buy or sell. Unforeseen changes in management, technology, economic conditions, and other variables can significantly impact results. Investors should consult with a financial advisor and conduct thorough research before making any investment decisions.
