Who, exactly, are those "handful of people" who really know? Are those the same that, according to Bloomberg, have "direct knowledge of the matter" And which are the "compliance problems" you speak of?
I do agree that being dispassionate, objective and levelheaded is each person's own prerogative given the fact that it's easiest to fool oneself.
Regarding volatility: Well, one ought to know what he's buying BEFORE he buys. Disappointment only arises when one's ignorant of the consequences of one's actions. Me? I view volatility as my friend because it allows me to buy companies at absurdly cheap prices.
Bottom line is that if one's sure of value, one ought to brace one's self for a wild roller coaster ride just as a part of life.
Sentiment: Strong Buy
Sigh...the typical Yahoo board spammer...
Let me guess, your source is "people with direct knowledge of the matter" ?
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
The new revenue could dry up and growth might as well stall. But I disagree about:
"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"
Remember that EBIX has customers in 60 countries around the world. For instance, in Australia, it's a monopoly, meaning there just aren't other options if one were to ditch EBIX. Do you think the Australians who already rely on EBIX for a huge portion of their business would abscond simply because EBIX misses earnings estimates? Or that EBIX isn't achieving top-line growth? Or that Gotham is bad-mouthing them? Or because stock drops 60%? I don't think so.
So long as EBIX's software and customer service have the promised performance, functionality and up-time, why would they leave? And remember, this is a capital-light business. EBIX doesn't need huge amounts of cash to service their existing business.
And let's not forget that this is the worst case scenario. Scenario where EBIX is found guilty of everything, pays huge fines, back-taxes, penalties and growth stalls.
On the other hand, I do understand that wall-street HATES uncertainty. At this point, I suppose Robin could come to dispel some of the exaggerations and quell some of the "fear" but the long-term outcome of this business isn't going to be altered by much.
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.
But they report all the numbers in USD, not INR. A weak INR means a strong USD which contravenes your point.
So USD needs to weaken in order US earnings to benefit, correct?
"I would imagine that EBIX's current legal problems and allegations of wrongdoing could have a serious negative effect on new business"
Again, my cost basis assumes no growth or new business, just status-quo, i.e: continuation of old business. I do agree that an open investigation can hamper growth while the investigation is ongoing. As for the existing customers (and I could very well be wrong here) - I simply do not believe that an open investigation by a certain state attorney will cause EBIX customers from 60 countries to start leaving in droves.
Fear would be justified if the underlying premise of the lawsuits and investigation(s) were sound. But I don't think they are. Do you? I do believe a crime, if committed, should be punished. All the lawsuits, investigations, etc are based on a premise that in and of itself is very weak and much of the price drop has been a self-fulfilling prophesy. So I don't believe that, even in a worst case scenario, much adverse will come out of it for EBIX.
Ah yes, you are correct. Although with the inflation/currency depreciation in India the way that it is, salary increases should soon be in order? Just speculating here, but you are right: It helps to earn in USD and pay in INR!
You are right about that too! He's one heck of a penny-pincher as evidenced by the reviews on Glassdoor and that's a good thing for us shareholders!
The last update was that "(EBIX was) informed by the office of the U.S. Attorney that their investigation is in its preliminary stages" and that "(it was) too early to make a determination of whether any violation of the securities laws or other laws has occurred, or whether any individual or entity could be considered a target, subject or witness in the investigation"
So that would technically mean that no one except the US DOJ would even know if there would be any investigation at all. They were just scouting to see if it the circumstances were worthy of an investigation.
Also let's not forget that EBIX managed to sign on NEW business AFTER the announced termination of Goldman merger and about the DOJ's involvement, namely: STP Exchange for Sao Paulo Brokers, Telefonica and Ash Brokerage.
My thoughts as well, Patient2invest. Common sense suggests that if there was blatant fraud/malfeasance going on then wouldn't SEC have stopped it, at least 10 months after being aware of it?
Although I can't pinpoint when, and given that short term price movements are notoriously hard to predict, I believe like value will be its own catalyst and the stock will eventually catch up with the fundamentals, and this belief remains unchallenged in my mind.
One more point I want to bring up - many posters here and no doubt many EBIX holders remain "worried" about the daily market price of EBIX. A true value investor ought to be more concerned about the fundamentals about the company - such as its competitive position, pricing power, sustainability, moat, etc, than whether how many puts or calls were bought or sold on a specific day. For instance, equal (if not more) effort should be allocated in finding out whether EBIX acquired a new customer as opposed to whether someone acquired massive puts on EBIX, as the former will be a better guide to the future stock performance than the letter.
kblosab2, it's nice to hear from a veteran like yourself. I have been eyeing EBIX since 2011 but refused to take the plunge as I wasn't all too confident in paying a dear or even a fair price despite EBIX's excellent fundamentals and (asset-light, highly recurring) coveted business model (Yes, I'm stubborn). But I kept my eye on the target and my finger on the trigger patiently waiting for the opportunity.
As luck would have it, that opportunity was granted this year and I was able to establish a position right when the merger was terminated and the arbs were stampeding out of the exits causing a race to the bottom. In other words, I had the chance to act greedily exactly when the majority acted fearfully. I, like many others believed that EBIX had been target of an unscrupulous short seller who intended on profiting from the temporary price action caused by his articles (as opposed to the permanent deterioration of business fundamentals).
My entry point has been superior compared to most long-term holders but I too intend to hold onto EBIX indefinitely unless something materially and irreparably adverse comes out of the company. In fact, if the price deteriorates further without any additional negative news, I will even consider increasing my position.
Sentiment: Strong Buy
It's promising to see something that I anticipated back in June: That the stock was being transferred out of the hands of the weak, and into the strong.
I can't help but compare Ebix to Dr. Michael Burry's Avanti trade that resonated the same type of depressive and absurd valuation even in light of cold, hard, facts:
"As often as not, he turned up what he called "ick" investments. In October 2001 he explained the concept in his letter to investors: "Ick investing means taking a special analytical interest in stocks that inspire a first reaction of 'ick.'" A court had accepted a plea from a software company called the Avanti Corporation. Avanti had been accused of stealing from a competitor the software code that was the whole foundation of Avanti's business. The company had $100 million in cash in the bank, was still generating $100 million a year in free cash flow-and had a market value of only $250 million! Michael Burry started digging; by the time he was done, he knew more about the Avanti Corporation than any man on earth. He was able to see that even if the executives went to jail (as five of them did) and the fines were paid (as they were), Avanti would be worth a lot more than the market then assumed. To make money on Avanti's stock, however, he'd probably have to stomach short-term losses, as investors puked up shares in horrified response to negative publicity.
That was a classic Mike Burry trade," says one of his investors. "It goes up by 10 times, but first it goes down by half." This isn't the sort of ride most investors enjoy, but it was, Burry thought, the essence of value investing. His job was to disagree loudly with popular sentiment. He couldn't do this if he was at the mercy of very short-term market moves, and so he didn't give his investors the ability to remove their money on short notice, as most hedge funds did. If you gave Scion your money to invest, you were stuck for at least a year."
I, being long-term oriented, actually hope that company DOESN'T release blow-out results until the buyback is COMPLETE. This will help keep the stock at these absurd prices, won't cause shorts to flee and allow EBIX to repurchase a solid 25% of its float for just $100 million. Once the buyback is complete and shorts are still in it, then would the time for the company to open the flood-gates.
I just want this company to execute on its path and not worry about pleasing the analysts in the next quarter or two.
Since there are a lot of posters here who believe the intrinsic value is materially higher than the current prices, what strategy/strategies are you employing to position yourself from maximizing the upside, while minimizing the downside?
The farthest option available to buy today is March, 2014. Since the stock price is highly contingent on DOJ's decision and since DOJ may or may not reach a decision in the next 6 months, I feel like buying the farthest options is the best way to profit from this.
For instance, one can buy $10 Mar 2014 call option for $200, or one can buy around 20 shares (@$10/share for the same dollar amount invested.
There are 3 things that can happen:
1. DOJ exculpates EBIX before March 2014 and the stock zooms to a price between $15-$20, in that case, the option experience a 250-500% gain, while the common stock would experience a 50%-100% gain.
2. DOJ heavily penalizes EBIX before March 2014, and permanently impairs its ability to earn cash or discovers something extraordinarily malicious causing the stock to be halted. Both options and common stocks experience a near 100% loss.
3. Nothing happens between now and March 2014, the stock remains flat causing the option to expire worthless while keeping your stock.
So essentially, it seems that if you agree to buy stock at $12/share ($10 strike price + $2 in options cost) at or before March 2014, you have the potential to experience 5 times the gain in case the stock shoots by March 2014. Even if nothing happens until March 2014, you can simply exercise your option and gain entry at $12/share (which isn't too bad if you believe in the fundamentals).
Disclosure: I'm long the common but am considering adding some options.
Well you're just paying 20% more per share, in order to be amplify your gain by 500% IF the stock jumps before March 2014. In both cases your downside remains the same. In other words, you agree to pay $12 by March 2014, instead of $10 now. In case nothing happens by March 2014, you just end up paying 20% more.
Having said that, do you think the verdict/settlement of the pending lawsuits or DOJ investigation will arrive before March 2014? It's speculative but something to think about.
I agree. Back in December of last year, when Herbalife was trading around 25-35 range, the mispricing was obvious beceause Herbalife would die or thrive. In other words, the equity was either worth $0 or worth $60+/share and one could've made a killing buying 2015 calls if you had considered that Herbalife operated in 80+ countries around the world, has been in business since 30+ years, had a strong lobby and was no stranger to regulators. Even if one would've waited for risk to dissipate and clarity to emerge (which did - after Icahn bought his stake and added his minions to the HLF board) one could've still bought OTM LEAPs and made a killing.
EBIX today is not unlike HLF in Dec last year in many aspects - notably - capital light business that throws off gobs of cash and trades for 5x earnings.
Even better is the fact that EBIX a has a moat around its business, is run by an owner-operator with a substantial stake and a proven track record and that even the most aggressive of the short-thesis is heavily flawed and rife with baseless accusations.
Having said that, I agree that early 2014 is too soon and would be much comfortable holding 2015 & 2016 LEAPs at current prices if available, as I'd be much better compensated in light of the risks taken. Heck I'd be more comfortable holding 2016 calls as opposed to common at this point.
Although, there were plenty to take the other side of the trade in case of HLF (asymmetrical on the downside!) and only fixed upside back in December....I remember, as late as April, you could buy $35 Jan 2015 call for $800. Today it's be worth about $3800.