MakeMyTrip

Though MakeMyTrip Ltd appears cheap due to heavy downward pressure in the past year, we have capped its rating at 3 stars to factor in the possibility that it represents a value trap. The stock currently trades at a 22% discount to our quantitative fair value estimate of $57.78 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The company's balance sheet bolsters our fair value estimate. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. For example, the firm's debt to EBITDA ratio of 8.1 ranks in the top 20% globally. The firm has a high level of debt relative to its asset base, which can signal significant investment in the business or a pending merger. In either case, it may suggest future growth in cash flows. We believe this is a sign that shares could be undervalued.

Alternatively, the company's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 27.9, for example, sits in the top 20% globally. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.