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Since I first promised to dig more deeply into this EBIX folderol, I’ve spent way too many hours considering how to summarize a pro or con case. The smoke has cleared and here is what I personally think, and why. It’s turning out to be easier than I’d originally imagined.

Just some housekeeping to start: I am deeply skeptical of most analysts, particularly those on the buy-side. This is due to suspicions of confirmation bias. It can therefore be said that I personally have a negativity bias, which is certainly true and that bias is very strong. You may sense from my recent writings that every security is a minefield and intrinsically valueless. I will finish this piece with some relevant reasoning why that is so.

Onward, then…

It is usually very difficult to look back and reconstruct what was happening at a particular time, however the Copperfield Research (heretofore annotated as CR) short attack and the Crystal Equity (CE) and Craig Hallum (CH) rebuttals offer a clear starting point for evaluation; evaluation of claims against EBIX by the short seller and evaluation of the conclusions that Crystal and Craig Hallum come to (and the predictive capabilities of Copperfield and Craig Hallum...a true and valid back-test).

When conflating the 3 reports, there are very few salient issues. All can be tested with some degree of confidence. These are:
1. Quality of the individual reports
a. Copperfield- evidence suggests that this is indeed a hatchet job. I want to believe it is not, but evidence suggests otherwise.
b. Crystal- this is the most neutral of the reports; clear-eyed, non-predictive, just the facts.
c. Craig Hallum- confirmation bias biases me against this report, but they make specific predictions such as “$2 in earnings is realistic.” Throughout the report, most of the statements they make are demonstrably true. Earnings did not quite make it to $2, but I’ll grant them success via the close-enough rule. Alas, their $35 share price target is wrong.

2. Accounting shenanigans: simply no evidence to back the short attacks.

3. Quality of free cash flow: evidence suggests auditors are on their game. Conclusion therefore is that we should take the company at their word. There is no real evidence of manipulation.

4. Tax “evasion”: nope. What EBIX is doing is regrettably common, not illegal. Does this make their true earnings lower? Sorry, no.

5. Success of acquisition integration: this will be an ongoing story and always a risk factor. No particular evidence that EBIX is doing it badly now or in the recent past.

6. Quality of management, and Robin Raina in particular: If one digs deeply and imagines broadly as I tend to do, my bias suggests that Raina is an ego-maniac (he’s been caught in an extremely minor political scandal); he wants his foundation to support his egoism while doing some good in his home country; he’s overpaid (as most CEOs are); and while most CEOs probably have some megalomania innate, that megalomania must never be ignored (see McClendon, Aubrey). So…meh…business as usual.

This brings us back to the realities of the situation and I’ll start with this from the CH report:
Tuesday morning an anonymous posting hit Seeking Alpha. Then, yesterday at 1.45pm when cumulative volume for the day was ~550k shares, a wave of extremely aggressive selling hit the shares, driving them down 24% by the close, on over 14.5 million shares in total volume. This is truly extraordinary, given our math which concludes that between insiders and a handful of key holders who we believe were not part of the selling, there does not appear to be enough stock left in the float to drive the kind of volume seen yesterday. By all accounts, it appears to have been a concerted effort on the part of some players, to drive the shares lower and capitalize on short positions which were increasingly becoming a liability for their owners. The action is not without precedent.

How is this possible? The stock market is a game. We tend to think that we earned a dollar, sent that dollar to our broker and converted that dollar into a dollar’s worth of company equity. Nice story, but untrue. Money is fungible, stock value is fungible and therefore we have fungibility squared. This is why I personally look for reasons why not to buy a particular stock…which is the point of this exercise. I conclude that EBIX stock is undervalued and has been manipulated mercilessly. Welcome to the stock market. I also conclude that this is a risky time to buy EBIX, even though it is “worth” more than 16 clams. See the Crystal Research conclusion for confirmation of my bias.

To AaronRogers: how can EBIX fight baseless claims?
EBIX can pay a dividend and buy back shares with free cash flow. To EBIX and Robin Raina, I concede; you win. But I’m expecting to buy back in in the $13s, maybe sometime in March.

-Randy
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