We believe that shares of EZchip Semiconductor Ltd. (EZCH) are highly overvalued.
Our full report is available here.
EZCH shares currently trade at $23.79, implying an egregious 7.5x 2013E EV/Revenue and a 32.5x GAAP P/E, surprising multiples for a business that has repeatedly demonstrated its inability to grow. As we frequently see in mispriced businesses, a high-level sector story - in this case the need for greater bandwidth on capacity constrained carrier networks - has steered investors into an overpriced stock with many idiosyncratic risks. We believe that investors are not properly assessing the competitive risks posed to EZchip's business or the limits of the addressable market, especially in light of the EZCH's astronomical valuation.
Before 2012, EZCH was fortunate enough to have little outside competition in high-speed network processors. But since the start of last year, two well-funded industry leaders have mounted attacks into EZchip's core Network Processing Unit (NPU) business. To begin with, Marvell Technologies (MRVL) began to compete for NPU market share following its January 2012 acquisition of EZchip's then-largest competitor, Sweden-based Xelerated. Given EZCH's reliance on Marvell as a conduit in the foundry relationship with Taiwan Semiconductor (TSM), the new arrangement appears conflicted. The dynamics are akin to Coca-Cola (KO) relying on Pepsi (PEP) for the manufacturing of Coke syrup.
But the most substantial competitive risk to EZCH, in our opinion, is the entry of Broadcom (BRCM) into the high-speed network processor market. Through its acquisition of NetLogic in 2011, high-end semiconductors have become a strategic priority for BRCM. In April 2012, Broadcom introduced a full-duplex 100Gb (i.e. 200Gb/s) NPU, pitting EZchip's upcoming NP-5 in direct competition with an industry leader. While EZchip touts its 200Gb/s headline figure for the NP-5, the chip is merely a full-duplex (two-way) 100Gb/s device, giving it the exact same bandwidth as Broadcom's chip. Another critique of BRCM’s NPU is that it lacks an integrated “TCAM” (Ternary Content Addressable Memory). This argument overlooks the fact that Broadcom can add a TCAM and other functionality as an expansion. But most troublingly for EZCH's investors, Broadcom now produces each of the individual components of the line card (TCAM, NPU, multi-core processor, etc.), allowing them to write software that transcends across individual components. This might allow BRCM to optimize the efficiency of the various hardware inputs and constitute a strong selling point versus EZCH's NP-5.
But even if one believes that the BRCM component is somehow inferior, credible alternate vendors in the marketplace could drive down NPU pricing. This issue is overlooked by many analysts who instead rely on EZCH management for guidance. In its Q4 2012 Presentation, EZCH tells investors that it expects a 40% increase in unit pricing between 2012 and 2016. Not only is this assumption inconsistent with the entry of Broadcom and Marvell, it's contradictory to the very nature of Moore's Law, where more computational power is delivered at ever decreasing costs over time. NPU pricing is also limited by a constant threat of NPU replacement by in-house designs from the likes of Cisco (CSCO), Huawei, ZTE (OTCPK:ZTCOY), and other router manufacturers. Just over three years ago, Juniper (JNPR) decided to replace all of its EZCH chips with in-house designs on future router designs. EZCH shares fell 14% immediately after the 2009 announcement. Huawei may have made a similar decision as they've delayed all EZCH orders as of Q4 2012. Management speculates that Huawei is using an in-house solution for at least a portion of their NPU demand, but they admit to having almost no visibility into this key customer account (EZCH Q4 2012 Call). A business that lacks pricing power should earn a commodity-like multiple, not the stratospheric valuation premium that EZCH currently boasts.
Foreseeing the threat in its core NPU market, EZCH has rushed to publicly announce a shift towards the data center market. EZCH's L4-L7 next-generation processor ("NPS"), if successful, won't generate meaningful revenues until 2016+ (Sept 5th NPS Call). But that hasn't stopped some investors from glowingly referring to the NPS as a 'game changer.' Unfortunately for the EZCH bulls, a privately-held Intel (INTC) spin-out named Netronome already produces a 200Gb/s flow processor with L2-L7 functionality that has won widespread industry praise. And as one of only a handful of outside partners with access to Intel's semiconductor foundries, Netronome's chips can be produced at the 22nm scale and below. Compare this to EZCH, whose next-generation NP-5 will only be produced at the 28nm scale with Taiwan Semiconductor.
Lastly, we believe that Wall Street research analysts are twisting forward EPS, and by association, overstating their EZCH price targets. Through the use of a non-GAAP technique that excludes stock-based compensation ("SBC"), we believe that the $1.13 2013E consensus EPS is inflated by about 35%. Wall Street analysts have no logical grounding for excluding these costs. Given EZchip's meager revenue stream in relation to its $690m market capitalization, its history of unfulfilled promises, the rapidly emerging competitive threats from Broadcom and Marvell, and EZCH's technological disadvantages in the data center market, we believe that EZCH's share price is poised for a sharp correction. Like many other technology hardware manufacturers dependent on a single customer for much of their revenue, EZCH's stock is one design loss away from falling by as much as 45%.
Summary of Red Flags
We believe that EZchip is significantly overvalued for the following reasons:
- Broadcom's 200Gb/s Network Processor Should Pressure EZCH's NP-5 Market Share and Price Point. EZCH has historically benefited from its cushy position as the leader in a duopoly market with Xelerated (now Marvell). But that dynamic changed drastically this year when Broadcom announced its entry into the market in mid-2012 via the BCM 88030 network processor. According to recent management comments, Broadcom expects to enter production and have customers in 2013, some of which could be poached from EZCH (BRCM 2012 Analyst Day). EZchip has told investors that "we believe that substantially all NP-4 customers will select the NP-5," but that sounds more like wishful thinking than fact to us (EZCH Q4 2012 Call). While EZchip touts its 200Gb/s headline figure for the NP-5, the chip is actually a full-duplex (two-way) 100Gb/s device. This is precisely the same speed as Broadcom's BCM 88030, a full-duplex 100Gb/s processor. The confusing nomenclature may be misleading some investors to brush off the risks from Broadcom. Broadcom began its push into more complex processors in late 2011 with its acquisition of NetLogic. This has allowed Broadcom to design all of the individual components of the router line card (NPU, TCAM, multi-core processor, etc.). Broadcom's CEO explained the benefits of this integrated supplier approach, saying: "We're able to make the products work better together, so we can optimize our switches to work with the network processors…it's our goal to design [products] as a platform to bring significant advantage to customers who purchase all of them together" (BRCM Q2 2012 Call). A single publicly announced customer loss to BRCM could spell disaster for EZCH shares.
- Marvell Technologies, the Sole Supplier for EZCH's NP-4 and NP-5, has Recently Become a Direct Competitor. In order to guarantee manufacturing capacity, Cisco appears to have demanded that EZCH use a larger company as a conduit between itself and EZCH's semiconductor foundry, Taiwan Semiconductor Manufacturing. Marvell, as "the sole supplier of our NP-4 and NP-5" (EZCH's 2011 20-F), serves this function by employing its buying power to move its orders to the front of the queue. But the arrangement has grown increasingly conflicted following Marvell's purchase of Xelerated, a small NPU startup, in January 2012. Xelerated had launched a 50Gb/s full-duplex processor (100Gb/s) in August 2010 and was EZchip's chief competitor at the time. We would expect Marvell to support the Xelerated team with much-needed capital to potentially push forward a next-generation chip to compete with EZCH's NP-5.
- EZchip's NPS Chip Appears Fundamentally Handicapped Versus the Privately-Held Netronome. Investors who refer to the NPS chip as a 'game-changer' are severely underestimating Netronome, a privately-held Intel spin-out run by an accomplished Caltech graduate. Netronome recently made its presence known by directly challenging EZCH at a Linley Tech Conference. A review of the conference illustrates the similarities between the two companies, stating that the NPS "will take EZchip beyond its switch/router roots and into a wider venue that looks more like, well, like Netronome's business." Netronome had previously introduced its 200Gb/s L2-L7 chip (called NFP-6xxx) back in June 2012. And notably, as only one of a handful of Intel fabrication customers (others include Archronix and Tabula), Netronome should hold a long-term technological advantage versus EZchip. Intel's best-in-class foundry has allowed Netronome to create its NFP-6xxx at the 22nm scale, and future designs may be made on Intel's 14nm scale. On the other hand, EZCH's foundry provider Taiwan Semiconductor will fabricate the supposedly next-generation NP-5 at only a 28nm scale. A smaller manufacturing scale can increase energy efficiency and add to bandwidth capacity. As a private company, Netronome has been under-covered by equity analysts and we believe that EZCH investors are underestimating the risks imposed by this formidable competitor. The significance of the Intel foundry relationship may be confirmed as Cisco is rumored to be near announcing a billion dollar foundry deal with Intel to produce its own silicon chips. If this were the case, it would prove that Cisco clearly values Intel's 22nm-scale technology.
- Consensus EPS Estimates use Non-GAAP Measures that Inflate EPS (and Analyst Price Targets) by Roughly 35%. To boost its lackluster earnings figures, EZCH management guides investors using non-GAAP reporting figures that exclude stock-based compensation ("SBC"). While this tactic is frequently used by technology companies, disciplined investors and analysts shouldn't be fooled. Since public shareholders of EZCH stock didn't receive their stock for free, then how can stock be gifted to EZchip's employees without expense? Of the research reports we've read, Felt & Company, Deutsche Bank, Jefferies, Brean Capital, and Oppenheimer all follow management's non-GAAP EPS to build their price targets. EZchip gifted its employees about $11m in stock options over the last twelve months (EZCH 20F, 6K), translating to a decrease in EZCH's non-GAAP EPS by about $0.39/share. This calculation has a very material impact on the price targets for a company which earns as little as EZchip does. For example, Felt & Co reaches a strong buy conclusion and a $35 target price by using a 22.5x P/E multiple on 2014 non-GAAP EPS of $1.55 (February 14th report). If we removed $0.39 of stock-based comp expense from Felt's figures, its same valuation multiple yields a target price of only $26. Because of this widely perpetuated miscalculation, it is a mistake for the investor community to be guided by forward multiples on Yahoo Finance or other sites that rely on these inflated non-GAAP EPS figures.
- Given What's Been Discussed Above, We Believe that Shares are Overvalued by as Much as 45%. Based on the forthcoming competitive risks from Broadcom and Marvell, EZCH's extensive track record of overstating growth potential, a relative lack of pricing power, and a weak backdrop in carrier spending, we believe that EZCH stock should now trade at a valuation multiple more in line with the broader semiconductor market. Peers demonstrating year-over-year revenue growth, unlike EZCH, generally trade between 10 and 15x 2013 P/E. After deducting our estimated SBC of $0.39/share from the Street's non-GAAP EPS estimate of $1.13, we valued EZCH based on our adjusted 2013 EPS estimate of $0.74. With the addition of 25% of EZCH's cash balance, a generous 2013 P/E multiple range of 15 - 20x leads to a valuation range of $12.50 - $16, or a 32% - 48% discount to the current trading price. We also don't believe that management's 3x revenue target by 2016 is realistic, and instead have used Gartner industry projections and our own assumptions to reach a 'bull-case' 2016 revenue target of $85m. At a 35% - 40% EBITDA margin and a 6x - 8x multiple, this translates into a price target of $14 - $17, still a 29% - 43% discount to the current price.
II. Company Overview
EZchip designs high-speed Ethernet Network Processors ("NPUs") used by the telecom industry to increase bandwidth in the aging ethernet networks used for phone, data, and voice services. EZchip's processors are used in high-speed network routers sold by Cisco, ZTE, Juniper Network, and other hardware businesses that then sell routers directly to businesses like AT&T (T) and Verizon (VZ). The Carrier Ethernet network can be divided into three domains: i) the Access network that connects individual traffic flows ("the last mile"); ii) the Edge (or "Metro") network that aggregates traffic within an urban area, and finally; iii) the Core network, which routes and processes all data requests to the proper channels. Access NPUs tend to have lower bandwidth requirements (1Gb/s-20Gb/s) than Edge NPUs (20Gb/s+). EZCH's routers are designed for the "Edge" of the network. Edge routers aggregate the incoming data streams from individual access routers and direct them to the Core. As one moves closer to the Core, router processing needs become increasingly complex. Because of this, better-capitalized router manufacturers such as Cisco and Juniper produce their Core routers using in-house NPUs that have computing power beyond that of EZCH's chips. These in-house Core chips are commonly called ASICs (application-specific integrated circuits). In order to save costs and overhead, some of these router companies outsource the simpler Access and Edge chip design to smaller companies like EZchip. Competitors in the high-speed NPU market include Marvell Technologies, Broadcom, and in-house chip design teams that decide against sourcing NPUs from an outside provider.
As a fabless semiconductor business, EZCH is reliant on Taiwan Semiconductor Manufacturing to manufacture its finished processors. TSM, which produces $17bn in annual revenue, probably views EZCH ($55m 2012 revenue) as a footnote on its customer list. Because of this, Cisco uses Marvell Technologies (a much larger TSM customer) as a conduit for its EZCH orders to ensure that its outsourced chips get priority at TSM's foundries (EZCH 2011 20-F).
EZchip currently boasts an enviable valuation of 9.6x 2012A revenue, 37.8x 2012A EBITDA, and 44.4x 2012 GAAP P/E. At valuation multiples as high as these, it's not surprising that many cling to the belief that EZchip's best days are yet to come. As with many overvalued stocks that we've encountered, management directs investor attention to an outsized addressable market opportunity in order to distract investors from disappointments in its underlying business. The EZCH bull case relies on its ability to achieve dominant market share of its 2016 "Total Serviceable Market" of $800m, consisting of a $400m NPU opportunity and a $400m data center opportunity (Q4 2012 investor presentation). Management further encourages the investor frenzy by leading investors to believe that revenue will grow 2.8x-3.7x by 2016 from the 2012 figure of $54.7m. This forecast was recently reduced from a revenue multiplier of 4x-5x, as had been used in the Q3 2012 investor presentation. Considering that EZCH's management has a history of over-promising and under-delivering, we caution investors against any of this forward guidance at face value. Those who believed management's promises of growth have been sorely disappointed time and time again. EZCH's revenue shrank from $63.5m in 2011 to $54.7m in 2012, hardly the type of momentum one would expect from a business with an almost 9x 2012A revenue multiple.
III. Looming Competitive Threats
Industry Leaders are Encroaching on EZCH's Core Market
EZchip has historically been fortunate enough to have just one significant competitor in high-speed NPUs, the privately-funded Xelerated. But last year, the competitive landscape drastically changed. To begin with, Marvell Technologies acquired the Swedish-based Xelerated on January 4th, 2012. At the time, Xelerated was the only company producing a 100Gb/s NPU aside from EZchip. Marvell will now compete in the 100Gb/s NPU segment directly with EZchip while remaining EZCH's only manufacturing partner. This newly antagonistic relationship with Marvell leaves EZCH in a precarious situation since the majority of EZCH's foundry orders at Taiwan Semiconductor are run through Marvell. Should the Edge processor market eventually become large enough, Marvell may decide its share of NPU revenues are more important than the royalties it collects serving as a manufacturing conduit for EZCH.
In addition to Marvell, we believe the biggest near-term competitive threat to EZchip is Broadcom. Broadcom began to vastly expand its product portfolio in September 2011 when it acquired the multi-core and high-performance processor maker NetLogic for $3.7bn. This marked the start of Broadcom's foray into NPU design using the engineering talent brought in from NetLogic. By providing all components in a network line card (NPU, multi-core processor, TCAM, etc.), Broadcom intends to bundle its solutions, which could eliminate the need for individual component providers like EZchip. Broadcom's newly expanded product platform is shown below:
Source: BRCM December 6th, 2012 Analyst Day.
Broadcom officially announced the BCM 88030 high-speed network processor, a full-duplex 100Gb/s (effectively 200Gb/s), in April 2012. EZCH's share price fell 9% on the announcement, but little has been made of the announcement since. Broadcom, on the other hand, appears extremely excited about its new market opportunity. At its 2012 analyst day on December 6th, Broadcom gave an update on the progress it has made.
"Another example of a product that expands our [addressable market] is 100 gig network processor that we that we introduced earlier this year. And by the way, you should be seeing all these products in production, right, with customers in 2013. So again, this is a product that's -- it that 100 gigabits of full duplex processing. Our nearest competitor's product about 40 gig, if you look at it as an apples-to-apples comparison, and again, this is a product that very well-positioned for further penetration into the traditional network processor market in EDGE routers primarily, as well as in some core router applications, as well as packet transport applications."
-BRCM at December 6th Analyst Day
EZCH has only recently begun to acknowledge the competitive threat posed by Broadcom, and even now does so ever so slightly. After adopting a very defensive tone when asked about the competition on its Q4 2012 earnings call, EZchip brushed off the concern by stating that, "we don't see much of them [BRCM and Marvell] in edge routers" (EZCH Q4 2012 Call). Just three months before, on the Q3 2012 earnings call, EZCH's CEO stated that, "We said all along that we feel that with NP-4 and NP-5 we kind of securing our market and our customers and we don't feel that we really have competition there…We feel that with NP-5, the chances for us to secure all the five large customers are pretty high" (EZCH Q3 2012 Call). Since management's comments are generally taken as absolute truth by EZCH analysts, the Street is not currently modeling for the pricing and market share effects of a Broadcom entry. We believe that this is a gross mistake and will lead to EZCH (once again) missing its projections in the near future.
Further Competition Could Emerge if Market Opportunity Grows
Besides the head-to-head competition from Marvell and Broadcom, there are at least half a dozen general purpose processor companies that have the potential to expand into high-speed NPUs. These potentially incremental competitors include LSI (LSI) and PMC-Sierra (PMCS), both of which already produce low-speed NPUs. For instance, PMC-Sierra is already the #1 manufacturer of lower-speed mobile backhaul network processors. Should the high-speed market grow in size, these companies would should the resources and in-house capability to quickly enter EZCH's market.
In-house Chip Design Concerns: The Juniper and Huawei Case Studies
While outside competitive threats are hardly discussed by management, EZchip management acknowledges the potential for router customers to bring NPU design in-house, previously mentioning that "the competition comes from in-house, from our customers that has always been our concern in edge routing and that continues to be our concern" (EZCH Q3 Call). Juniper Networks, once EZCH's largest customer, was the first major vendor to abandon EZchip in 2009. Juniper first began selling routers embedded with the NP-2 processor in 2007 and accounted for as much as 55% of EZCH revenue in 2008. But then, in an attempt to compete more effectively with Cisco, Juniper announced a manufacturing contract with IBM that allowed it to bring NPU chip design in-house. This October 29, 2009 announcement was a major body blow to EZchip's long-term business viability as it removed a top-tier router vendor from the customer list. Yet somehow, EZCH shares only fell 7% from $12.84 to $11.97 on the date of the announcement. Normally, when a company loses its largest customer, the market reaction is much more negative. But EZCH's investors seem to repeatedly put a mystical faith in the future of this business.
Investors were once again blindsided on February 13, 2013 when EZchip announced on its Q4 2012 call that Huawei had not yet placed production orders, leading management to believe that Huawei was substituting in-house designs for EZCH chips. Management's conclusion that Huawei is developing an in-house solution is "currently a mere speculation" (EZCH Q4 2012 Call) since EZCH apparently doesn't maintain an open dialogue with Huawei. While EZchip remains optimistic that they'll only be replaced in the "lower end," management's lack of insight into a key customer account betrays a much broader concern, the lack of intimacy between EZchip and its key customers. We saw this dynamic at work in our previous work on Mellanox Technologies (MLNX). If a business with only a handful of customers cannot maintain a clear grasp of the strategic intentions of a major customer, it's equally unlikely to correctly predict its revenue stream years into the future.
The EZchip congregation may be slowly losing its faith as EZCH shares fell over 20% after the Q4 2012 call. The Juniper and Huawei examples remind us that EZCH's designs are perpetually at risk of replacement. Going forward, investors should remember that Cisco is unlikely to ever pay EZchip hundreds of millions of dollars for something it might be able to do itself.
IV. Unsustainable Valuation by Any Measure
The semiconductor industry, as a group, tends to trade at a relatively modest valuation multiple given the industry's reliance on product cycles and the commoditization of many parts of the business. Competitive advantages disappear overnight and customers can leave within a single product cycle. But when a misunderstood company becomes the flavor-of-the-month, valuation metrics can quickly get out of hand. Such has been the case for EZchip's 40x+ 2012 P/E multiple.
Given the uncertainty of EZCH's growth, the company's tendency to over-exaggerate product ramps, the loss of a key customer account to in-house designs, and the entry of Broadcom and Marvell into the NPU space, we'd argue that EZCH no longer deserves a premium valuation to the industry. We also believe that EZCH's mispricing exists because most of the Street's analysts exclude EZCH's mounting stock-based compensation ("SBC") expense from EPS, thereby inflating earnings by 30%+. Over the last twelve months, EZCH spent $11.2m on stock grants (or $0.39/diluted share). While this might be a minor footnote for a large-cap organization, it's a very major line item for EZCH. By excluding SBC, the analysts are effectively reducing EZCH operating expenses by the same amount, leading to embellished valuation multiples. After netting out this $0.39/share of SBC to analysts' 2013E EPS estimates, we reach a GAAP earnings estimate of $0.74/share. With the addition of 25% of EZCH's cash balance, an above average industry P/E multiple of 15x produces an $12.50 price target and a generous 20x P/E would led to a $16 price target, or a 32% - 48% discount to the current trading price.
EZCH bulls might reject this valuation argument by instead citing management's target of 3x revenue growth between 2012 and 2016. To construct its target, EZCH cites April 2012 research from Infonetics and its own internal sources. Gartner, a very well-regarded technology research firm, published more recent thoughts on the market in December 2012, predicting that the Edge Router and Switch market will grow by only 3.6% in 2013 and 11.3% in 2014. While this might be exciting if EZCH were trading at 10x P/E, these are hardly awe-inspiring numbers for a high-flying growth stock.
EZCH further constructs its long-term 3x revenue growth target by assuming that its average selling price ("ASP") increases by 40% and the EZCH's edge router market penetration increases from 30% to 40%, resulting in an additional 30% - 70% revenue boost (Q4 2012 Investor Presentation). We take issue with both of these assumptions. As Moore's Law helps explain, customers will demand higher performance at a lower cost over time. Even the high-end chip titan Intel posted flat year-over-year growth in 2012. EZCH clearly isn't immune to this dynamic since revenue fell between 2010 and 2012 even though the next-generation NP-4 began ramping in 2H 2011 (EZCH Q1 2011 Call). For these reasons, we'd only credit EZCH with an inflationary-driven ASP growth of 3%/year. We also believe that any end-market replacement of ASICs by NPUs will be overshadowed by market share losses to Broadcom, Marvell, and other potential competitors, leading us to believe that EZCH's end-market share will remain flat. By combining these two assumptions with Gartner's end-market growth of 44% between 2012 and 2016, we project 2016 revenue of only $85m.
Sources: Gartner Edge Router Forecasts, EZCH filings
At a 35%-40% GAAP EBITDA margin, the high-end of the historical trend, the 2016 revenue target of $85m would result in only $30 - $34m of EBITDA. A liberally high 6x-8x forward multiple results in an enterprise value of $179m - $272m. After adding the current cash balance of $168m plus $50m for the interim cash generation, we can then infer a market capitalization target of $400m - $490m, or about $14 - $17/share.
The Problem with Neglecting EZCH's Stock-based Compensation Expense
Warren Buffett, among others, has repeatedly attempted to educate investors on the lunacy of treating SBC as a non-expense. In the chart below, we've shown how large of an impact stock expense has had on EZCH's results:
As shown below, the figures extracted from Wall Street research match non-GAAP EPS, inflating the analysts' projections and, by association, EZCH price targets.
Felt & Co.
Sources: Felt & Co Feb 14th, 2012 report; RBC Capital Feb 14th, 2012 report.
EZCH was able to prevent a share price collapse despite its terrible 2012 results by diverting attention to the research-stage NPS chip. Never mind that the NPS product is 4+ years away from contributing meaningfully to revenue and that the underfollowed Intel spinout Netronome has a sustainable manufacturing edge. But with this trump card now played, EZCH investors and analysts have now begun to examine the looming competitive threats from Broadcom, Marvell, and in-house chip design teams. Huawei's apparent decision to select in-house designs over EZCH puts another crack in management's long-term revenue growth projections, which on further study appear to be built on little more than wishful thinking. It's not hard to imagine a scenario where Broadcom's 200Gb/s NPU wins at least one or two customers away from EZCH and confidence in the stock quickly collapses. Moreover, continued weakness in the wireline capex market should keep organic growth muted through 2013. As stated by EZCH's CEO on the Q3 earnings call, "The revenue ramp of these customers will depend on the success of their new NP-4 platforms in the market, which in turn is driven by the CapEx levels of the carriers" (Q3 Earnings Call). These very basic end-market and competitive concerns lead us to believe that EZCH's sky-high 32.5x 2013E P/E is simply unsustainable.
Additional disclosure: Please read our full disclaimer at the end of our report at kerrisdalecap.com/wp-content/uploads/2013/03/EZCH-Report-March-2013.pdf.