Why Ebix Stock has just been destroyed


What happened

Actions of Ebix (NASDAQ: EBIX), a software provider serving the insurance, finance, healthcare and e-learning industries, crashed on Monday after the company released startling news over the weekend.

As the company revealed on Friday evening, after markets closed last week, its auditor RSM US LLP resigned “for having been unable, despite repeated requests, to obtain sufficient and appropriate audit evidence that would allow it to ” assess the business purpose of significant unusual transactions [in Ebix’s Indian gift card business] which occurred in the fourth quarter of 2020. ”

The business in question, which is part of EbixCash, has been a huge growth engine for Ebix, showing sequential growth of 95% in the third quarter of 2020 for example. Now investors are questioning the reality of that growth, and Ebix stock is down nearly 50% as of 10 a.m. EST Monday.

Image source: Getty Images.

So what

Ebix has tried to play down the bad news, noting on Friday that its unaudited results show it raised $ 220 million in revenue in the fourth quarter of 2020 and generated both operating profit and cash flow from operations. operating more than $ 32 million in the quarter – to which the gift card company contributed only $ 1 million – the implication being that the “unusual transactions” that so upset RSM no wasn’t much of a problem.

Responding to investor questions over the weekend, the company further argued that investors were overreacting, insisting that “the financial health of the company is in better shape than ever before”. has $ 140 million in the bank and that its scheduled IPO of EbixCash business is still on track to take place at the end of this year.

Now what

Investors don’t buy it, however. With a market cap of nearly $ 1.6 billion on Friday, Ebix collapsed to just around $ 800 million in value at the latest report. Compared to the stock’s $ 94.5 million profit, that looks like an incredible bargain – less than 10 times the profit. Of course, that’s only a good deal if you believe Ebix is ​​making as much as he says he is, and right now investors doesn’t seem in a confident mood.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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