What happened
Shares of financial data provider MSCI (MSCI 1.00%) rose 10.5% in November, according to data from S&P Global Market Intelligence. Investors continued to back the company's shares following an Oct. 31 earnings report that beat on both revenue and EPS expectations. The company also signed a long-term licensing agreement with a key client.
Portions of MSCI's revenues are also linked to assets under management, and rising world indices on hopes for a U.S.-China trade deal added fuel to the fire. Finally, MSCI opened up its new ESG (environmental, social, and governance) analytics platform to the public late in the month, as it aims to ride the new trend in ESG-linked asset allocation.
MSCI Month to Date Price Returns (Daily) data by YCharts
So what
In the third quarter, MSCI grew revenue 10.1%, and adjusted (non-GAAP) earnings per share grew an even better 24.4%, with both figures exceeding analyst expectations. Importantly, MSCI renewed its 10-year contract with Blackrock (BLK 1.35%), in which Blackrock will pay a license fee to MSCI for all MSCI-linked index funds and ETFs. Rising worldwide markets also helped in November, as a portion of MSCI's revenue is tied to asset levels.
Yet even without rising markets, strong capital inflows to ETFs and other passive strategies is giving MSCI a big tailwind. The company is not only a leader in global and emerging market indexing IP but has also recently unveiled new ETFs based on on-trend factors. These include new ETFs for smart cities, the digital economy, "millennial"-themed ETFs, and other disruptive technologies.
Now what
These strong results were enough for investors to bid up shares of MSCI in November, even though the company now trades at a fairly high 38 P/E ratio.
Investors love companies like MSCI for its scale, largely recurring-revenue subscription model, secular growth trends, and high margin -- for instance, MSCI's adjusted operating margins were a whopping 51% last quarter. The move toward passive strategies, analytics, and the rise of emerging markets should continue to fuel MSCI's high-quality growth. Therefore, look for the stock to continue to perform well going forward, despite its pricey valuation.
