Ebix Inc. (EBIX) is a supplier of software to the insurance industry. Have you ever applied for insurance and the agent asked you about a million questions, some of which seem like they couldn’t possibly have any effect on your premium? Well they’re entering this data into a computer program that compiles all of that data and pops out an insurance rate. That is the type of software that EBIX produces — and does so quite successfully. They actually provide many more services that this simple example, but the point is that they produce a very specialized product for a very specific market.
I discovered EBIX some time ago through a screen using my Predictable Growth Low Debt screener, for which it ranked tier 1 as far as the selection criteria is concerned. Specifically, EBIX has enjoyed phenomenal growth on both the top and bottom lines over the past number of years: a 51% EPS growth rate over the past five years, and a 31% revenue growth rate over the same period. EBIX has extremely low debt (D/E of 0.12) and a steadily increasing book value as well.
Despite this rosy picture, EBIX has been plagued over the past couple of years with some bad press that has severely affected its stock price. In March/11 Copperfield Research wrote an article on Seeking Alpha calling EBIX a House of Cards, and again just recently on Nov. 5/12 Bloomberg published an article claiming that EBIX was to be probed by the SEC for accounting malpractices. In both cases, share prices were decimated. It is widely believed that the 2011 article was nothing more than a short attack on the company however, and despite the supposed imminent SEC probe back in November, there’s been nothing formally announced. A recent post at the Long Term Value Blog shares some interesting thoughts on this matter. In any case every investor needs to form their own opinion, and my personal belief is that EBIX is an excellent company and this bad press is potentially providing an excellent buying opportunity at a greatly reduced price. The remainder of this article will focus on the company’s fundamentals and attempt to determine an intrinsic value for EBIX under this assumption. Continue reading