ipsiety (< 20)

My thoughts on EBIX

September 29, 2011 – Comments (2) | RELATED TICKERS: EBIX , CSC , SLH

Underperform ! The reasoning is as follows. Please correct me if I am wrong. It seems a lot of Fools are for EBIX (with its pristine 5/5 caps).

 There is something weird going on with the numbers of EBIX. The competitors, CSC, CRM, INSW have a net margin of around 3-6% and the highest one SLH has around 20%. Why does EBIX enjoy such a huge net margin, and how long can it keep it up, is a good question. A decline of net margin to the levels of its competitors (say 9%) will already make the high P/S ratio of 4 look like 20 (sales*net margin = profit, ie., what goes off margin, must be recouped by increased sales to have the same profit) ! 

Furthermore, if you see in the TTM the sales growth is already slowing, and is at 10%. If one uses this a growth rate of say 30% with a more manageable margin of say 10% then over a 5Y horizon (if the market is willing to pay a P/E of 10 we have)

Sales=132*(1.3)^5=490m
Profit=49m (= sales*net margin)
Current cap=565m
Current #s=1.5 m (has increased 7x since 2006, was 0.21 m then)
5Y Price = 10*(Earning after 5Y) = 490 m

Which is less than what the company is worth at the moment. And this is assuming that the company does not dilute the shares (unlikely, given its acquisitive streak) and maintains a phenomenal growth rate of 30% with 10% net margin. I do not even think that they can keep this growth rate with no acquisitions.