Ebix Inc: Fintech Play Will Surge If This Happens

Ebix Inc Fintech Play Will Surge If This Happens
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Ebix Inc Is a Contrarian Global Fintech Stock With Great Upside

I was searching my screen of small-cap technology stocks that are well off their highs, and Ebix Inc (NASDAQ:EBIX) is one that surfaced. While up 19.9% this year, this stock is off 43% from its August high of $89.10.

On its face, this financial technology (fintech) play appears to be fundamentally sound, with strong revenues and profitability. The market concern, however, is that Ebix changed its auditor in October and there have been whispers of accounting discrepancies.

Prior to the auditor change, EBIX stock was trading around $72.00, which is about 42% higher than the current price. So, if the auditor doesn’t find material problems, the stock could surge.

Ebix Inc has been around for 43 years. The global company provides flexible on-demand software infrastructure that makes it easier for insurance, financial, and healthcare companies to market their products and services via an online marketplace.

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The company also offers the “EbixCash Financial” online digital platform for domestic and international money remittance, travel,  gift cards, utility payments, and other services. It is marketed in Southeast Asia, including India.

EBIX stock is included in the Russell 2000 Index and the S&P SmallCap 600 Capped Information Technology index.

A look at the chart of EBIX stock shows the breakdown following a bearish death cross.

Chart courtesy of StockCharts.com

The current $50.00 level is at risk, but if EBIX stock can hold and the accounting issues are dealt with, Ebix could find its way back toward the $62.00 to $75.00 zone.

Fundamentals Support Bull Case for EBIX Stock

Ebix has generated higher sequential revenues in each of the last five years, achieving an impressive compound annual growth rate (CAGR) of almost 23.5%.

Fiscal Year Revenue (Millions) Growth
2014 $214.3
2015 $265.5 23.9%
2016 $298.3 12.4%
2017 $364.0 22%
2018 $497.8 36.8%

(Source: “Ebix Inc.,” MarketWatch, last accessed July 4, 2019.)

Revenue growth is estimated to continue but at a more normalized rate, which is not a surprise as companies get bigger.

Ebix is slated to grow its revenues by 23.8% to $616.3 million in 2019, followed by 14.9% to $708.3 million in 2020. (Source: Ebix, Inc. (EBIX),” Yahoo! Finance, last accessed July 4, 2019.)

The company has produced positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and profits during the last five years.

Fiscal Year EBITDA (Millions) Growth
2014 $79.1
2015 $98.2 24.1%
2016 $110.8 12.9%
2017 $158.6 43.1%
2018 $169.7 7.0%

(Source: MarketWatch, op. cit.)

Generally accepted accounting principles (GAAP) diluted earnings per share (EPS) have been positive, with growth from 2014 to 2017, prior to a contraction in 2018.

Fiscal Year GAAP Diluted EPS Growth
2014 $1.67
2015 $2.28 36.5%
2016 $2.86 25.4%
2017 $3.17 10.8%
2018 $2.95 -6.8%

(Source: Ibid.)

On an adjusted basis, Ebix is expected to report EPS of $4.33 in 2019 and $5.35 in 2020. (Source: Yahoo! Finance, op. cit.)

The company has also been delivering positive free cash flow, including a five-year high in 2018.

Fiscal Year Free Cash Flow (Millions) Growth
2014 $42.2
2015 $34.7 -17.9%
2016 $77.8 124.2%
2017 $69.4 -10.7%
2018 $79.5 14.5%

(Source: MarketWatch, op. cit.)

Analyst Take

In my view, the upside for EBIX stock will depend on whether the auditor finds material accounting problems.

It is clear that institutional investors don’t appear to be that concerned though. Some 259 institutions hold 89.3% of the company’s outstanding shares. (Source: Yahoo! Finance, op. cit)

The market is betting against Ebix Inc, as demonstrated by the massive short position of 8.0 million shares, or a whopping 50.3% of the float, as of June 13. If the shorts are wrong, EBIX stock could take off if shorts begin to cover.

Given that Ebix trades at 9.5 times its 2020 EPS and has a price/earnings to growth (PEG) ratio of 1.12, the stock may be ripe for a rally.