MakeMyTrip, India's Mile High Short?

MakeMyTrip.com MMYT, based out of India, recently launched its IPO in August and the stock has been "flying high" since, as it is up over 40% from its first trading day. Barron's recently published an article discussing that the stock flying above the clouds, maybe begin its descent downward. All good things must come to an end and "any bump in the road" could bring the shares down. Barron's says the stock is trading at a "painfully expensive" valuation at 235x analysts' consensus earnings estimates of $0.16/share in FY11 and almost 93x FY12 estimates. MakeMyTrip is based in Mauritius and has a market cap of $1.3 billion and revenues of $40.3 million, which puts it trading at a staggering 32x sales. Trying to be fair, Barron's says, "Valuation alone isn't enough to make a fair judgment. How profitable is MakeMyTrip? It isn't, posting only losses in the three previous fiscal years." Margins have been dropping steadily as well. Barron's says that Indian airlines don't like paying commissions to travel agents and has been reducing them to cut costs recently. MakeMyTrip has had to raise fees though to keep margins stable. This may not be enough to keep the company afloat if competitors like Expedia EXPE were to become a player in the Indian market. Because India has only a per capita income of only $1,000, rail travel should continue to be the top choice of travel as well. These reasons among others could be the catalyst needed to send the stock spiraling down. MMYT is trading down 2.5% at $37.60