Five Big Bulls To Know For Friday May 9

While these single-week gains certainly seem impressive, it is crucial to dig beneath the surface to see what has caused these extraordinary gains. This will help us predict whether the price will continue to impress. Let's take a look at the one gainer on this list with a bearish sentiment in the Stock Picking Community.

Shooting Star
Mutual fund rating service, Morningstar's shares jumped about 19% to close last Friday at $71.84 per share after releasing better-than-expected quarterly earnings. Earnings beat Street expectations of 44 cents per share with earnings of 47 cents per share - up about 42% over last year's earnings of only 33 cents per share. Along with earnings, revenue for Morningstar was up 31% over last year, coming in at about $125 million. (Learn how to gather all the pieces of information before you start putting together the puzzle in The Flow Of Company Information.)

In an interview with Reuters, CEO and Chairman, Joe Mansueto said, "Fortunately we have a large amount of recurring revenue and a lot of stability in our revenue stream." Morningstar's investment consulting strength and the recurring licensed data it sells seem to be the way that it is increasing revenues and profits in a floundering financial services sector. Over the past 52 weeks, the Dow Jones U.S. Investment Services Index is down about 30%, while Morningstar is up almost 48% from the May 9, 2007 close of $49.99 per share.

Star May Be Too Bright
Although Morningstar is off of its high of about $80 per share, back in December of 2007, its valuations are still a bit pricey in my mind. With a P/E of 44 compared to the industry average of 19, Morningstar may be a bit too expensive for its current earnings, even if they are increasing. Stock Picking Community member adteitelbaum27 agrees, positing that the high multiple gives this stock a bearish outlook. (For an introduction to this ratio, read Understanding The P/E Ratio.)

Morningstar seems like a good company with a lot of potential, but with its recent large gains, I would prefer to see it pull back a bit before pulling the trigger.

Add Your Two Cents
What do you think will happen with Morningstar going forward? Will its recurring and stable revenue streams help it to navigate the choppy waters of the financial markets? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.