I understand the company's reluctance to comment about the short attack or the allegations made in connection thereto in light of the ongoing U.S. Attorney investigation, but the company better step up real soon and support its stock before the short attack thesis of the company being virtually worthless actually becomes a reality. This stock could soon be in the mid single digits if the proverbial wheels fall off the truck here. At that point, I see no way that EBIX revenues will not be materially negatively affected as new business steers clear. Once the company reports next with a big miss, everything could completely unravel at EBIX. The company has little debt so buying back the debt here cannot be more important than maintaining the share price at a high enough level so that the company can continue to market effectively. Management better step up here with exercising some of its authorized buyback before it is too late. I sense a downtrend in the market generally over the short term as evidence seems to suggest that the economy's recovery is stalling. I do not think EBIX will able to effectively weather the storm of a downtrend in the market without support from the company here, especially in light of the relentless efforts to trash the stock through continued purchases of short positions and put options and the publication of negative articles. Buying of EBIX is really going to dry up if the market starts to go substantially negative because there will be no reason to take a risk and buy EBIX even if it is a great value at a very depressed share price when there will be plenty of other stocks at significantly discounted levels which do not pose nearly the risk and are not the subject of such severely negative press and an on going U.S. Attorney investigation.
What if EBIX declares dividend of unregistered security which collects fees for some of EBIX products and produces dividend to holders, It can be spin off of EBIX with company can still holding majority of it. How will shorts deal with it in such a scenario. Would this force shorts to run?
I hate re-iterating my previous posts but the short term price-action means NOTHING (well it does mean something if you are a day-trader).
For the long-term investor, prices are supposed to be nothing more than entry-points and exit-points. Investors should neither rejoice when stock bounces up nor lament when stock drifts down. Wealth is not generated by jumping in and out or by following stock to the tick. Wealth is generated by betting when odds are heavily in your favor, then following your conviction and patiently waiting until you are proven right or until the circumstances change.
All these real time quotes and meaningless noise really do a huge disservice by beguiling a long-term investor into participating in a myopic game of trading.
Stuart, I appreciate the spirited comment.
Let me first admit something about which we can all agree on: As the stock drifts lower, it becomes harder to hang on without a firm conviction in the company's value and easier to doubt ourselves.
Having said that, I think you seem to be too fearful of what the consequences if the stock does drift materially lower.
I do not view the share price, in any way, as a measure of the company's true value. For all I know, some unwitting/fearful seller somewhere could agree to sell his stock for $5/share or $2/share even without any more adverse news simply because the Fed stops the stimulus or if US declares war or if the economy goes bonkers or if Gotham keeps reminding them how EBIX is worthless because it didn't pay taxes in Sweden. Yes, on a mark-to-market basis, your portfolio would be deep in red, but that would also coincide with the pinnacle of irrationality. If you were any bit rational, you won't sell at $2/share simply because everyone else is selling at $2/share unless you have a reason to believe that the intrinsic value of the business has been irreparably damaged.
Keep in mind that almost all of the company's revenue is recurring and it isn't easy for the existing client-base to just leave EBIX on a whim. I can see new customers questioning whether to go with EBIX or someone else. But at $10/share (5-6x FCF), are you really hoping/expecting/paying for growth?
The verdicts of the existing investigations could be out in the following weeks, months or possibly even a year or more. That is fine. The lengthiness of the verdict should at least signal that there isn't blatant fraud going on that the regulators are rushing to stop.
Finally, given that short term price gyrations are impossible to predict, few will actually catch the bottom here, which implies that most buyers will, at some point or another, be in the red. But only those that hang on through all the thick and thin will realize the true value.
Sentiment: Strong Sell
You make some good points, but at this point I do not find my fear to be anything but a real potential reality that is growing more likely with each passing day. This is how this could play out if this stock continues to drift lower. New revenue dries up as new business goes elsewhere. EBIX's growth stalls, and company badly misses in the next or fourth quarter earnings report. Stock tanks and existing customers start to get very spooked. Existing customers start to think that they better not get caught sleeping here and start to look for another company to provide the services that EBIX is providing because as you point out moving is expensive and not easy, and it will take time for an existing EBIX customer to properly transition to a new provider without causing problems in the customer's business. Everything for EBIX unravels from there. Not a far fetched scenario here, and an outcome that may not be no more than 1 or 2 quarters away if things don't change soon. Smart EBIX customers are not going to wait for EBIX to go out of business before they decide to make a move, even if expensive and time consuming.
mutual and hedge funds are unwinding positions now. why take the risk. the longer the bashing goes at some point it will affect revenues. which will affect the stock price
I would add that if the government shuts down in the next few weeks which is a very real possibility as certain members of the House seem absolutely committed to stopping the funding of Obama care even at the expense of causing severe damage to the U.S. economy. Stocks will certainly tank in response to a government shut down, and EBIX will be at the mercy of the short attack without anyone doing much buying of any stock. It could get real scary for EBIX real fast.