Is Morningstar’s Fair Market Value of Value?

A subscriber commented and asked:

“I have been wondering whether Morningstar’s estimate of ‘fair value’ for stocks has any relationship to actual subsequent returns. For instance, when the fair value is more than double the market price, is the return over the next year substantially greater than for stocks where the fair value is less than half the market price? I haven’t found anything like this on your site, only an assessment of mutual fund ratings which is a very different matter.”

As an alternative, tractable investigation, we hand collect end-of-month Morningstar price relative to Fair Market Value (P/FMV) for the overall stock market from their 5-year historical chart. We then relate those P/FMVs to monthly returns for SPDR S&P 500 ETF (SPY) over the same period. Using monthly Morningstar P/FMVs and SPY returns during May 2020 through April 2025, we find that: (more…)