Morningstar Fair Value Estimate compared to Stockopedia Value Rank

6th Mar '23 by gweinstein

3 comments 1113 reads

Often when Morningstar indicates that a Share price is at or near Fair Value (https://www.morningstar.co.uk/... / search for "What is the Morningstar Fair Value Estimate for Stocks?") the Stockopedia Value rank is indicating the Share price is overpriced (i.e. a low Rank value).

I find this contradictory and I'm not sure who to believe.

I realise that they will be calculated differently, however I'd like to know how best to interpret this discrepancy.

As an example, Morningstar suggests that Coca-Cola (KO) Fair Value estimate is $58. Stockopedia says its Value Rank is 29 at the current share price of $59.44. That's not a lot of difference in the share price, are a very different interpretation of whether or not the Share price is reasonable.

Your thoughts please.

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Edward Croft

6th Mar '23

Ok these are different concepts.

Morningstar's Fair Value estimate is a measure of intrinsic value.
Stockopedia Value Rank is a measure of relative cheapness vs all the stocks in the market.

The Value Rank ignores company quality/growth etc. It's best not to misinterpret it as saying "50 is fair value". 50 just means has an average valuation across typical ratios (PE, P/S, P/B etc).

A high quality company (e.g. a High Flyer) may have a low Value Rank (i.e. it will justify being relatively expensive).

The StockRanks are best used in combination with each other. As per the "Styles" framework. My rule of thumb is to only buy shares that rank highly for a minimum of 2 out of 3 of the QVM ranks.

BnB

I really like the Morningstar ratings, but, as Edward says, they perform a different role to the Stocko value rankings. As a gross simplification, Stocko will find you trades with a higher likelihood of profit and even point to the optimal exit - very useful, if that’s your thing. Morningstar, through their moat rating, will highlight companies worth owning for the long term. And, if that’s your horizon, I wouldn’t worry too much about achieving a big discount to fair value.

If you understand your own investment style, you’ll know where to place greater emphasis.

gweinstein

8th Mar '23

Thanks Ed, appreciate your clarification

Morningstar Fair Value Estimate compared to Stockopedia Value Rank

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Gweinstein

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