Freedom Holding

Freedom Holding Corp is assigned a 5-star quantitative star rating, reflecting our opinion that this share class offers a compelling opportunity for investors. The stock currently trades at a 18% discount to our quantitative fair value estimate of $210.62 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The firm's balance sheet strengthens our estimated valuation. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. For example, the firm's EBITDA/interest coverage ratio of 1.5 sits in the bottom 20% globally. Although the firm's ability to cover interest payments with EBITDA is limited, shares could sharply rebound if economic circumstances change or recent investments reduce fears of default. We believe this is a sign that shares could be cheap.

Conversely, the firm's lack of profitability is potentially concerning. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. The firm's earnings yield of 1.7%, a core component of profitability, ranks in the bottom 40% compared with peers globally. The earnings generated by the company relative to its share price is concerning, which, despite our favorable price/fair value ratio, is a negative attribute.

The company's narrow economic moat rating suggests it should be able to maintain robust profitability for a decade or longer before competition erodes its advantage. Its moat is bolstered by its strong financial health, which indicates low near-term bankruptcy risk.