StepStone Group

StepStone Group Inc is assigned a 4-star quantitative star rating, reflecting our opinion that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 26% discount to our quantitative fair value estimate of $62.01 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The company's balance sheet increases 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 -55.8 lies in the bottom 10% compared with peers 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.

The company's profitability is an additional encouraging factor. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's earnings yield of 7.6%, for example, sits in the top 30% globally. This suggests that it is generating substantial earnings relative to its share price, which further promotes our favorable price/fair value ratio.

The company's quantitative economic moat rating of none suggests any excess returns could erode quickly as competition arrives. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.