What Causes a Morningstar Rating to Change?
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What Causes a Morningstar Rating to Change?
Morningstar's stock star ratings are updated daily, and therefore they can change daily.
Things To Know
- A change in the stock's price could cause the rating to change.
The factors involved
The ratings can change because of a move in the stock's price, a change in the analyst's estimate of the stock's fair value, a change in the Uncertainty Rating, or a combination of any of these factors. The Morningstar Rating for stocks includes a small buffer around the cutoff between each rating to reduce the number of rating changes produced by random market "noise." If a $50 stock moves up and down by $0.25 each day over a few days, the buffer will prevent the star rating from changing each day based on this insignificant change.
Something to remember about the estimates
It is important to note that Morningstar's fair value estimates do not change very often, but the market prices do. Therefore, stocks often gain or lose stars based just on movement in the share price. If Morningstar analysts think a stock's fair value is $50, and the shares decline to $40 without a change in the intrinsic value of the business, the star rating will go up. The estimate of what the business is worth hasn't changed, but the shares are more attractive as an investment at $40 than they were at $50.