StepStone Group (NASDAQ:STEP) versus Morningstar (NASDAQ:MORN) Critical Review

StepStone Group (NASDAQ:STEP) and Morningstar (NASDAQ:MORN) are both mid-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, dividends, valuation, earnings, analyst recommendations, risk and institutional ownership.

Volatility and Risk

StepStone Group has a beta of 1.29, meaning that its stock price is 29% more volatile than the S&P 500. Comparatively, Morningstar has a beta of 1.02, meaning that its stock price is 2% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for StepStone Group and Morningstar, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
StepStone Group	1	2	8	0	2.64
Morningstar	0	1	2	0	2.67

StepStone Group presently has a consensus target price of $66.11, indicating a potential upside of 52.96%. Morningstar has a consensus target price of $235.67, indicating a potential upside of 4.19%. Given StepStone Group’s higher possible upside, analysts plainly believe StepStone Group is more favorable than Morningstar.

Valuation & Earnings

This table compares StepStone Group and Morningstar”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
StepStone Group	$1.99 billion	2.59	-$535.81 million	($7.72)	-5.60
Morningstar	$2.45 billion	3.43	$374.20 million	$11.45	19.75

Morningstar has higher revenue and earnings than StepStone Group. StepStone Group is trading at a lower price-to-earnings ratio than Morningstar, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares StepStone Group and Morningstar’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
StepStone Group	-30.53%	43.38%	4.40%
Morningstar	17.00%	45.17%	12.52%

Dividends

StepStone Group pays an annual dividend of $1.32 per share and has a dividend yield of 3.1%. Morningstar pays an annual dividend of $2.00 per share and has a dividend yield of 0.9%. StepStone Group pays out -17.1% of its earnings in the form of a dividend. Morningstar pays out 17.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. StepStone Group has increased its dividend for 3 consecutive years and Morningstar has increased its dividend for 16 consecutive years. StepStone Group is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

55.5% of StepStone Group shares are held by institutional investors. Comparatively, 57.0% of Morningstar shares are held by institutional investors. 15.7% of StepStone Group shares are held by insiders. Comparatively, 38.8% of Morningstar shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Summary

Morningstar beats StepStone Group on 12 of the 17 factors compared between the two stocks.

About StepStone Group

StepStone Group Inc. is a private equity and venture capital firm specializing in direct, fund of funds, secondary direct, and secondary indirect investments. For direct investment, it seeks to invest in private debt, venture debt, incubation, mezzanine, distressed/vulture, seed/startup, early venture, mid venture, late venture, emerging growth, later stage, turnaround, growth capital, industry consolidation, recapitalization, buyout investments in mature and middle market companies. It prefers to invest in natural resources, technology, healthcare, services, materials, manufacturing, consumer durables, apparel, hotels, restaurants and leisure, media, retailing, power, utilities consumer staples, financials, telecommunication services, clean energy/renewables, transport, social, natural capital, infrastructure, corporate, real estate, credit and real asset. The firm invests globally with a focus on United States, North America, Europe, Asia, Latin America, Middle East, Africa, Brazil, Mexico, Argentina, Colombia, New Zealand, China, India, Korea, Japan, Taiwan, and Australia region. The firm invests between 5% and 40% in emerging markets. For fund of fund investment, it seeks to invest in private equity funds, venture capital funds, Special situation funds, Real estate funds, Infrastructure funds, mezzanine funds, and turnaround/distressed funds. It considers investments in both domestic and international funds. It also seeks to make co-investments and follow-on investments and considers partial interests in funds. StepStone Group Inc. was founded in 2007 and is based in New York, New York with additional offices across North America, South America, Europe, Australia and Asia.

About Morningstar

Morningstar, Inc. provides independent investment insights in the United States, Asia. Australia, Continental Europe, the United Kingdom, and internationally. The company operates in five segments: Morningstar Data and Analytics; PitchBook; Morningstar Wealth; Morningstar Credit; and Morningstar Retirement. The company offers managing investments, including mutual funds, ETFs, separate accounts, collective investment trusts, model portfolios, equities, and fixed income securities; Morningstar Direct is an investment-analysis and reporting platform; Morningstar Advisor Workstation, a suite of tool to provide help and advice. The PitchBook segment provides data and research covering the private capital markets comprising venture capital, private equity, private credit and bank loans, and merger and acquisition activities; and pitchbook platform. It provides model portfolios and wealth platforms; Morningstar Managed Portfolios, an advisor service with model portfolios designed for fee-based independent financial advisors; and Morningstar.com that discovers, evaluates, and monitors stocks, ETFs, and mutual funds; build and monitor portfolios and markets. In addition, the company provides credit ratings, research, data, and credit analytics solutions; Morningstar DBRS which offers securitizations and other structured finance instruments, such as asset-backed securities, residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized loan obligations. Further, it offers managed retirement accounts, fiduciary services, Morningstar Lifetime Allocation funds, and custom models; Morningstar Indexes offers market indexes used for performance benchmarks and as the basis for investment products and other portfolio strategies; and Morningstar Sustainalytics provides environmental, social and governance data, research, analysis, and insights. Morningstar, Inc. was incorporated in 1984 and is headquartered in Chicago, Illinois.