INVESTools, Inc. (SWIM)

Investools, already cheap, made a great acquisition that looks ugly. The market unsurprisingly reacted negatively to what initially looks like an incredibly expensive half-stock $340 million acquisition of tiny options brokerage ThinkorSwim. Despit the undeniable EV/adjEBIT dilution from paying 5.5X EV/EBIT stock for 31X trailing earnings, the price was not as eggregious as it seems, as forward multiple was closer to half that. That leaves the combined business with $70 million est. Investools 07 EBIT and ThinkorSwim another $25m: a sub 7X EV/EBIT multiple for a rapidly growing business. And that's before benefits from the entire justificaiton for the acquisition, that being the opportunity to leverage Investools front end (customer base) with the most widely acclaimed discount options brokerage interface around. Converting the natural-fit high touch IED customers to ThinkorSwim is an extremely profitable to way the huge front end CPA inherent in the investment education business versus the peanuts they were making referencing customers to Options Express. This also provides an interest catalyst as Investools deferred revenue accounting and obscure, tainted business has kept its cheapness below the radar. While there are no investment seminar analysts, the brokerage business is widely covered and should generate a lot of attention to a company that is trading at 6-7adj ebit growing at extremely high rates with positive tax attributes. The business is incredibly cheap as long as the customer don't all go broke...