One Newly Overvalued Stock

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Each week, we screen the US-listed stocks under Morningstar’s coverage for newly overvalued names.

For the week ended Dec. 20, one stock saw its Morningstar Rating change to 2 stars, while another one entered 1-star territory. Stocks rated 3 stars are fairly valued according to Morningstar analysts, while those rated 4 or 5 stars are considered undervalued.

The new 2-star stock is:

• Dropbox DBX

The new 1-star stock is:

• Darden Restaurants DRI

All returns in this article are reported in the stock’s base currency and all data is sourced from Morningstar Direct.

Newly Overvalued Stocks for the Week Ended Dec. 20

The Morningstar US Market Index fell 2.21% last week, leaving the overall US stock market moderately overvalued, hovering at an 8% premium to its fair value estimate on a cap-weighted basis.

Of the 874 US-listed stocks covered by Morningstar analysts:

• Thirty-six percent are undervalued, 39% are fairly valued, and 25% are overvalued.
• One is newly overvalued.
• Forty are newly undervalued.
• One moved from a 2-star rating to a 1-star rating.
• Among the newly overvalued stocks, none went from a 3-star rating to a 1-star rating.
• Forty-five are no longer overvalued.

Morningstar analysts assign every stock under their coverage a fair value estimate, which is an intrinsic measure of the stock’s worth, and a Morningstar Uncertainty Rating, which captures the range of potential outcomes for that estimate. A higher Uncertainty Rating equates to a larger range of prices considered fairly valued.

These two metrics and the stock’s current price, are used to determine its Morningstar Rating.

Metrics for This Week’s New 2-Star Stock

Dropbox

• Morningstar Rating: 2 stars
• One-Week Return: 1.61%

Software infrastructure firm Dropbox is up 22.47% over the past three months and 1.54% over the past year. The stock’s price is 16% above its fair value estimate of $26 per share, with an Uncertainty Rating of High. The small-core stock has a Morningstar Economic Moat Rating of none.

Metrics for This Week’s New 1-Star Stock

Darden Restaurants

• Morningstar Rating: 1 star
• One-Week Return: 12.54%

Darden Restaurants has gained 11.23% over the past three months and 19.86% over the past year. The mid-core stock has a narrow economic moat. Darden’s fair value estimate rose to $145 from $141 during the week. It ended the week trading at a 29% premium to its new fair value estimate with an Uncertainty Rating of Low.