The house rules are simple in this weekly column.

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, MakeMyTrip (Nasdaq: MMYT).

Almost done with the 10th chapter
When shares of MakeMyTrip popped 89% higher on the company's first day of trading last month, the leading travel site in India become the hottest IPO since 2007.

It wasn't a fluke. The stock has padded its gains since then. Yesterday's close of $34 finds the stock trading 143% higher than its original $14 price tag.

What's MakeMyTrip worth these days? There's a bit of confusion on that front. Yahoo! Finance pegs MakeMyTrip's market cap at $600 million, but that's based on the 17.6 million shares outstanding before this offering. Once you tack on the freshly minted portion of the 5.75 million shares in the IPO, the preferred shares being exchanged for 12.3 million ordinary shares, and a handful of exercised options, MakeMyTrip's share count bumps up to nearly 35 million -- and its market cap closes in on a heady $1.2 billion.

Now there's no mistaking the "story stock" nature of MakeMyTrip. As India's online penetration and middle class grows -- and there's plenty of room on both fronts -- MakeMyTrip is going to be a big long-term winner if it can fend off rivals Yatra, Cleartrip, Travelguru, and any other competitive threats.

MakeMyTrip didn't even launch in India until 2005. It had spent the five previous years targeting expatriates living in the United States. In other words, this market is still taking form.

Investors are comparing MakeMyTrip to the market leaders in China and the United States, but we're getting ahead of ourselves. MakeMyTrip has posted losses in each of the past three years. It finally turned a small profit during its latest quarter, but the company should have been profitable earlier with this seemingly scalable model. Revenue grew 22% to $83.6 million in fiscal 2010, so it may take some time before the company grows into its lofty market cap.

Commanding 48% of India's online market, I do like MakeMyTrip for the long haul. However, there may be a rude awakening in the near term when investors realize its true valuation.

I also have to point out that roughly a quarter of the IPO shares were unloaded by insiders that had no problem cashing out at $14 a share.

Color me long-term bullish on this one, but I think it will head lower before it appreciates several years out.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • Tata Motors (NYSE: TTM): If you want a safer bet on the emergence of India's population of 1.2 billion, take the wheel. Tata is the country's leading truck maker and one of the largest players in consumer cars. It also only helps that Tata is the company behind the Nano, which is the world's cheapest car at $2,500. Obviously, this is an industry with a higher barrier to entry than launching a travel website. The upcoming General Motors IPO and this summer's hot debut of Tesla Motors (Nasdaq: TSLA) prove that investors have an appetite for auto stocks. Tata is also cheap, trading for less than 10 times this year's projected earnings.
  • Universal Travel Group (NYSE: UTA): MakeMyTrip bulls aspire to compare their $1.2 billion company to Ctrip.com (Nasdaq: CTRP) -- China's leader commanding nearly $6 billion in market value. However, they may not want to ignore the smaller players, including Universal Travel and eLong (Nasdaq: LONG). Universal is very profitable, and revenue last year soared 49% to hit $97.9 million. Its top-line growth is expected to accelerate, climbing by 58% this year on chunky profitability. This looks a lot better than MakeMyTrip's fundamentals, yet Universal is fetching less than 10% of MakeMyTrip's market capitalization.
  • Travelzoo (Nasdaq: TZOO): The travel deals publisher behind the "Travelzoo Top 20" weekly email of sponsored travel bargains has been posting blowout quarters lately, and shares surged last week after it introduced a Groupon-esque initiative offering discounted local experiences. Proven, profitable, and with a high-quality mailing list of 21 million global opt-in subscribers -- and climbing -- Travelzoo seems like a more compelling value than MakeMyTrip at four times the market value.

I'm sorry, MakeMyTrip. Maybe I should check out MakeMyBullArgument to see what I'm missing in the near term.

Ctrip.com International is a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.