Morningstar Stock Valuation

So how do analysts value a stock? A recent video from Morningstar, one of the most trusted independent sources for stock values, discusses the methodology it uses. If you watch the video, you will hear a lot of methodology similar to what we discussed in the textbook, especially discounted cash flow analysis. Similar to what we discussed, the value of the stock increases by the capital gains yield and will change as new information is received. Notice an important point: Morningstar only recommends a stock if it believes that is fair value is significantly above the current market value, which implies Morningstar does not believe the market is semistrong form efficient.

SPAC Issues Fall

SPAC issuance this year has been at a record pace, but an accounting change by the SEC appears to have slowed the market dramatically. The SEC recently announced that warrants issued by SPACs would be classified as liabilities, not equity. In March, 109 SPACs went public, but that number is is down to 10 in April. Warrants are typically granted to early investors as extra compensation for the cash invested. Valuing these warrants will be expensive and it appears that many companies may not have the internal capacity to do so. And the warrants will need to be valued every quarter when the company files its 10-K.