About three years ago, the stocks of insurance software provider EBIX Inc. (EBIX, Financial) was under attack by short sellers. The company was also the subject of an investigation by the U.S. Attorney General of the Northern District of Georgia. Goldman Sachs just called off its merger deal to buy the company at $20 a share. It seemed that its troubles could only get worse and the stock dropped to $8.
Fast forward to today, the company is now back to its growth track. It won several large contracts and entered the London insurance market, which is the largest insurance market in the world. The company has grown its revenue by more than 30% over the last three years. Its net income suffered decline initially due to the lawsuit but it is now growing again. We expect that the company continues to grow its earnings at double digits in the next years.
In the meantime, the company continues to buy back its shares. Over the past three years, the share count has been reduced by 15%. The stock price has made an all time high of close to $50 and it is now traded at around $45.
Three years ago GuruFocus Founder Dr. Charlie Tian wrote that EBIX Is a Deep Bargain. It was also the largest holding in his personal portfolio. He has a gain of more than 200% and has not sold any. It is now by far the largest holding in his personal portfolio and he will not sell the stock in foreseeable future.
With the stock prices making all time high, and the company business growth at double digits, the short sellers haven’t given up completely although they are at deep loss. Currently the short percentage of float is about 31.2%. However, all of the short sellers shorted the stock at much lower price. They have been covering their shorts over the past months.
At current level, the stock is traded at around its fair value. But with the long term growth potential the company has, we expect that the stock will continue to outperform the market. This is the current Peter Lynch chart:
We can see that the stock is slightly above the Peter Lynch Earnings Line. But with the growth perspective of the company, we believe that the stock still have large potential.
