There's a slightly different stink to the #$%$ this time around. It's like even the shorts don't believe it anymore, and they are just trading the price move instead of making a legitimate bet that EBIX is a fraud.
The more EBIX keeps earning cash, and either investing it or returning it to shareholders, the more people will immunize themselves against these blatant price manipulation attempts, and hold their stock for the longer term reward that it provides. Eventually it will come down to the one question that allows me to hold my EBIX with complete faith: do any of these allegations (even if they're true) change the fact that EBIX has earned and spent (roughly) $100million on acquisitions and $100million on shareholder-returns in the last few years? That cannot be faked, and it trumps everything else in the long run.
The stockholder lawsuit is a trifle to EBIX. The plaintiffs are essentially arguing that they lost money on the stock market (maybe the judge will award them a box of Kleenex (Buy KMB too!)). Even if they owe damages, they could pay them off in under a month. The organic growth versus acquisition debate is a trifle. Nobody really cares if a pro-forma prediction of revenue was off by a little bit when the end result is that the company makes a boatload of cash off the investment in question, and then gives that cash to the shareholders. The alleged SEC investigation is the only thing that could have a significant material effect on shareholders, and the worst case scenario is a restatement of earnings along with a charge on back taxes. Even that worst case scenario, which I believe to be unlikely, does not change the fact that EBIX earned and spent $200 million over the last few years. They would just have to pay some of it back as a fine. The ONLY thing that justifies these huge price drops is this completely unfounded fear that EBIX is a complete scam, a massive accounting fraud that is intentionally inflating their results through offshoring and an endless stream of acquisitions to hide the lack of any real growth. And that would be a legitimate concern if EBIX hadn't earned and spent $200million over the last few years. Scammers do not return the cash to their investors because that defeats the purpose of the scam.
EBIX's products are real, go do your due diligence, they are real. EBIX really spent $200 million on acquisitions, and returning cash to shareholders over the last few years - this kind of cash use cannot be faked. These media attacks will continue as long as they keep working (causing the flash crashes and volatility). How well will it work a year from now when EBIX has returned another $50 million to shareholders. How well will it work 5 years from now after we've all been collecting dividend checks for half a decade? There is a massive short squeeze coming. It's been coming for years, and every single quarter that EBIX records a growth, the squeeze is just getting bigger and bigger.
The only real risk here is the same risk that we face when investing in any company: that EBIX's business prospects will decline before we all get paid on the massive short squeeze. I find that to be very unlikely considering the massive market tailwinds at EBIX's back. The insurance market stands to gain great efficiency in the adoption of the very tools that EBIX is offering. The trend toward this change has been going on for 20 years, and will continue for another 20 years, as insurance like everything else goes completely online. I can hold my EBIX stock for 20 years, can you hold your EBIX short position that long? Have fun paying my dividends next year.
Good post! Have you thought about writing an article and laying out the bull case for EBIX on
Anyways, IMO the shorts have a few valid points among their lies, distortions, rumors, and hype.
EBIX is short on organic growth, but this quote from the last earnings call makes me think we
might see a large increase in growth(and an epic short squeeze): "So in terms of when do we start
seeing deals, that's anybody's guess. At the same time, I think on a generic level, I can tell you
that we are bullish about what we see on our sales pipeline. Our sales pipeline continues to grow,
our sales people continue to do -- open up more accounts. We believe that we're just getting
started. We think that 2013 will be a very good year, and we believe Q4 will be a good quarter in
terms of revenues. We are pleased with what we see today in terms of our pipeline.""
They might also have sloppy internal controls and auditing as the shorts state. However, its
pretty immaterial as you write... they have high verified cash flow, so there is no "quality of
earnings issue" like the shorts would have us believe. A few amendments to filings, and possibly
higher costs of compliance going forward might happen, but beyond an SEC fine I couldn't see the
worst case scenario being much worse than that.
They are also somewhat right about acquisitions hiding costs(IE: the free cash flow isn't
necessarily so free). However, thats why the stock deserves something like a 15 PE instead of much higher... that would only have us at double the current price, much different than the ridiculously low price that the shorts made their price target. They're really batting for the
moon there, aren't they(5.50 to 7.70 per share)? Just imagine if the price was that low, what
perecentage increase in EPS would you get just using all the FCF to buyback shares for a year?
In short, the shorts have a few semi-valid points littered among the #$%$, but their conclusion is utterly ridiculous. Anything under $20 a share is an absolute steal, their price target is so laughable.
Very well said. Yes they definitely have some valid points otherwise the stock price wouldn't crash, but as you said, those points are mixed in with fear-mongering slander, and their conclusion is ridiculous. I don't think I'm qualified to write a syndicated piece of journalism. Unfortunately that's a personal standard that apparently not enough people hold themselves to these days. But all of the information I've put forth here on this board is basically public information that I consider to be common sense. I believe journalism should reveal information that is not available to the public eye, and I also believe journalists need to actually prove their thesis by naming reliable sources. Anything less is simply opinion. Anonymous authors writing about anonymous sources should never be syndicated. SA is a rumor mill.
There is no doubt that CopperFOOL's report is slanted to try and drive the stock price down (reminds me of Manuel Asensio a decade ago) with lots of inuendo built around some specs of facts. Of course he neglected to mention, when he discussed the PEAK suit, that the fraud complain had been DISMISSED, although the other complaints will continue to trial.
I could not have said it any better.There is nothing unique about the shareholder lawsuit against Ebix. You can find similar lawsuits against almost every company whose shares have dropped.
I am not too concerned about this lawsuit. Worst case they may have to pay money to ambulance chasers.
I totally agree with you.The whole premise of investing in Ebix is the Free cash flow yield. You can not fake cash. Ebix spent $63m in 2012 in share buyback and $8m on dividend. In 2013 they will pay around $12m dividend.A fraud company does not pay dividend year after year and that too from operating cashflow. The dividend is increasing and will keep on increasing.
As long as cashflow in intact share price will bounce back .It is a matter of time when Ebix announces next buyback.
Sentiment: Strong Buy
Here is what i say they need to do.
They need to get new analysts to follow this company. The need then to do their DD and say that everything they see is good and this should not be selling at an 8PE and less going forward. They need to show investors that they are fully commited and buying some stock with their person funds would go a long way.
As long as there is noone to refute the nonsense written then the shorts can continue to play these games.