"Morningstar (NASDAQ:MORN) may be best known as the creator of its mutual fund rating systems, but there's much more to its business ... "

So ran the opening line of "What Makes Morningstar a Star," penned by fellow Fools Andy Cross and Rex Moore earlier this year. In that piece (available to Motley Fool Stock Advisor members), Andy and Rex dissected Morningstar in an effort to explain just what it is that makes Morningstar tick -- and a good thing they did. Because otherwise, your humble Foolish writer would have a tough time keeping straight all of Morningstar's 15 business units, many with apparently overlapping names, scattered amongst three key "segments."

In such spirit of straightness, I'm going to imitate my Foolish compadres today and sketch out last week's earnings report according to how these three main segments fared:

Institutional
Just like the previous quarter, it was Morningstar's newfound focus on Big Money that shined in Q2. Revenue derived from helping mega-institutions like MetLife and Prudential (NYSE:PRU) manage their money soared 27%, operating margins expanded by 510 basis points, and operating profits leapt 48% in response. CEO Joe Mansueto singled out the investment consulting business within this segment for special mention as having performed "well."

"Well?" I'll say. Assets under advisement grew 22% year over year, growing even since the end of Q1. That's better than the 5% growth in assets under management reported by BlackRock earlier this month. Better than T. Rowe Price's 8% increase. And way better than Legg Mason (NYSE:LM), where assets under management are in decline.

Individual
Next up on the hit parade was Morningstar's calling card -- the individual advice segment. Here the message is a bit mixed. Advertising sales "remained strong" and premium subscriptions to the company's website grew year over year -- but slipped slightly from Q1. Still, things were good enough to produce 16% revenue growth, a near-40% operating margin, and 34% more operating profits than last year.

Advisor
Bringing up the rear was this segment, where revenues grew slowest at 12%. Still, margins expanded nearly as widely here as in the institutional segment, pushing operating profits up 33%.

All together now
Pulling Morningstar's pieces back together, we find the company weathering the recession admirably. Total revenue rose 21%, and margin expansion across the board created a clean 50% boost in net earnings -- $0.57 per share. Free cash flow rose 45% to $37.1 million in Q2, reversing the negative free cash flow of yester-quarter and bringing Morningstar's total cash generation to nearly $100 million for the past 12 months.

Valuation
All in all, we're looking at a stellar business model here. Compare it with, for example, TheStreet.com -- where profits fell nearly 40% in the same quarter in which Morningstar's rose 50% -- and the qualitative differences between the two companies are clear.

That said, even Warren Buffett tells us to seek out "great" businesses at "good" prices. While my Foolish colleagues over at Stock Advisor no doubt disagree, I submit to you that we're "not there yet." Not at a good price, that is.

Valued at 39 times trailing earnings, Morningstar looks more than a little pricey relative to the 24% long-term growth analysts expect the company to produce. And while it's true that Morningstar's cash profits cast a shadow over its net income as reported under GAAP, we're still looking here at a stock that's trading for nearly 30 times trailing free cash flow. Personally, I'd wait for better prices before buying into even this "great" company.

Better prices when?
Good question. It's rare for Morningstar to sell for a price-to-free cash flow-to-growth ratio of less than 1.0 (my rule of thumb for what defines "cheap"). But I suspect we'll get such a chance to pick up shares for better prices over the course of the next year.

Why? Because as of last Friday, we entered the final yearlong countdown to when Morningstar loses its lock on contracts with six major investment banks (Morningstar is consistently coy about naming its clients, but all the big names were part of the settlement: Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Lehman Brothers (NYSE:LEH), and Merrill Lynch (NYSE:MER), to name just a few.) Under the terms of the global analyst research settlement, these banks hired Morningstar to provide their customers "independent equity research." After July 2009, "Morningstar does not know how much, if any, of this equity research revenue it will retain or replace."

As management makes clear, these contracts make up only 4% of Morningstar's annual revenue, so even if Morningstar loses it all, the hit still wouldn't be huge. That does not mean, however, that investors won't overreact to the prospect and give us a chance to own this great business at a better price.

Put on your shades and gaze on Morningstar's performance in:

JPMorgan is a Motley Fool Income Investor pick, Legg Mason is an Inside Value recommendation, and Morningstar is a Stock Advisor selection. The Fool owns shares of Morningstar and Legg Mason.

Fool contributor Rich Smith does not own shares, nor is he short, any company named above. The Motley Fool has a disclosure policy.