Ebix - Short Squeeze In Play

Oct.23.13 | About: Ebix Inc (EBIX)

Ebix Inc. (NASDAQ:EBIX) has been the target of short sellers on more than one occasion and is currently being investigated by the U.S. Attorney General of Georgia. The investigation appears to be the reason that Goldman Sachs pulled out of the $20 per share deal causing the stock price to plummet on June 21st. That same day Ebix announced a $100M stock repurchase program to be completed within 24 months. Ebix has refuted all allegations of any wrongdoing and no official charges have been filed to date.

Each week we use the American Association of Individual Investor's Stock Investor Pro to scan over 60 predefined stock screens which screens over 7,000 stocks based on quantitative methodologies based on the investing principles of well known investors such as Warren Buffet, William O'Neil, Peter Lynch etc. Ebix is one of the less than one half per cent of stocks that passed 5 or more of these quantitative screens. Obviously, quantitative screens do not take into account any news or allegations, however, Ebix's stock price has been also rising steadily since the end of September as the chart below shows.

EBIX SHARE PRICEClick to enlarge
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Yesterday, the stock popped 4+% early in the day before settling back for a gain of 1.5%. Today, the stock shot up in the final half hour of trading for a gain of 7.47%, breaking $12 to trade at its highest level since the Goldman Sachs deal fell through (see chart below).

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Surprisingly, the short volume data published daily by FINRA does not show any apparent reduction in daily short activity as shown by the chart below.

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In February we wrote an article on Questcor Pharmaceuticals (QCOR). This stock was also heavily shorted at the time but had been rising quickly as short sellers attempted to exit their positions in a classic short squeeze. Questcor continued to rise about another 15% after the article was published in the final few days before their earnings release. Since that time, Questcor's price has since doubled on favorable news. The stock price action currently exhibited by Ebix appears similar to the way Questcor Pharmaceuticals was behaving then.

The last information published at nasdaq.com on September 30th shows 15.5 days to cover. This is a measure of the number of trading days required to close out the short positions at the average trading volume. With only ten trading days left before Ebix's earnings release on November 5th, it seems probable that Ebix's stock price could see some high volatility and significant price appreciation before that time.

No news is good news for the longs.

Disclosure: I am long [[Ebix]]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.