(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Shares of Morgan Stanley (MS) have risen by over 15% over the past year, just barely beating out the S&P 500’s rise of about 14.6%. But despite the increase, shares of the stock are nearly 12% off their highs. Analysis of the technical charts suggest shares may be poised to fall further, by over 9%. 

The outlook for future earnings growth is also expected to decelerate significantly in 2019 and 2020, after a healthy 2018. Even from a valuation perspective shares of the investment bank are trading at some of its most expensive levels since 2012, based on its price to tangible book value. 

MS Chart

MS data by YCharts

Technically Weak

Shares sit right above technical support at $51.60, along with a technical downtrend that is in place. The stock tested support at the end of May with shares falling below it, before rebounding to higher prices. But the downtrend in the stock appears to be strong, and volume levels have not improved as the stock has rallied over the short term, which would suggest the buying has no conviction. The next level of support would indicate shares could fall by over 9% to $47.25. (For more, see also: Why Bank of America and Morgan Stanley Can Rebound by 25%.)

Additionally, the relative strength index continues to trend lower, since the start of 2018, suggesting momentum has been coming out of the stock. The stock has also yet to reach oversold conditions with a reading below 30. It too would indicate that shares have further to fall. 

Slowing Growth

Earnings and revenue growth is seen slowing in both 2019 and 2020, after what is expected to be a blockbuster year of growth in 2018. Earnings in 2018 are forecast to climb by 31.6% to $4.74 per share, while revenue is seen rising by 7.6% to $40.82 billion. But in 2019 earnings growth is forecast to slow sharply to only 7.7%, and to just 9.66% in 2020. Revenue growth is expected to slow even more dramatically to 2.9% in 2019, and only 1.8% in 2020. 

Valuation Is High

MS Price to Tangible Book Value Chart

The stock currently trades at 10.2 times 2019 forecasts of $5.11, and is in the middle of its historical range over the past three years. Additionally, the stock trades at nearly its highest price to tangible book value since 2012 at 1.52. It makes shares of Morgan Stanley not cheap on either valuation metric, while earnings slow. (For more, see also: Why Morgan Stanley Is Poised to Rise by 25%.)

The weak technical chart, slowing growth, and valuation suggest that Morgan Stanley may be heading lower over the short term. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.