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1.
Which Uncertainty Rating requires the largest discount (margin of safety) for a stock to become rated 5 stars?
Very high. Stocks with an Uncertainty Rating of Very High require the largest discount to Morningstar's Fair Value Estimate before they become rated 5 stars.
2.
The Morningstar Fair Value Estimate represents which of the following?
An estimate of how much a stock should be worth today based on how much cash flow the company is expected to generate in the future. Morningstar's Fair Value Estimate represents how much a stock should be worth today based on how much cash flow the company is expected to generate in the future. The Morningstar Fair Value Estimate should not be confused with a target price, which is how much the market might be willing to pay for a stock. To arrive at a fair value, Morningstar analysts use a detailed discounted cash-flow model that factors in projections for the company's income statement, balance sheet, and cash-flow statement. It is not adding projected earnings growth to a stock's current trading price.
3.
What is a drawback of using ratios (such as price/earnings ratio or price/book ratio) to value stocks?
They require context to understand. For example, there may be a disconnect between the ratio and the market price of the stock.
4.
Which generally takes more time and expertise to calculate?
Future cash flows. These require a lot of financial statements, facts, and projections to calculate.
5.
How would a tiny change in a stock's price change its Morningstar Rating?
It likely would not change it. There is a buffer zone built into the ratings to prevent tiny changes from leading to a new rating.
