The cheapest stock in the market
One has a hard time deciding would you rather have growth or value in an investment? What if you could have both? A company which offers you growth at a reasonable price today is EBIX . Ebix provides software and IT solutions to the insurance industry as well as building exchanges for them. It is a lucrative field and the revenues are quite dependable 80 percent of Ebix’s revenues are recurring and they have a 99 percent customer retention rate.You can learn more about Ebix here. Ebix has many reasons why it should be considered as an investment among them is:
CEO Robin Raina not only has turned the company around but also holds a substantial number of shares. Return on equity is a robust 25 percent as well as return on investments. Book value has consistently increased as well indicating an increase in shareholder value derived. Raina has also been with the company for over ten years showing a genuine commitment.
Growth VS Valuation
Trading at 17 times earnings may not sound overly cheap but with strong cash flow generation and growth it is much cheaper than realized. Ebix is also growing at around 40percent with organic growth of 15 percent making it dirt cheap compared to its growth.
Ebix has carved out a profitable niche and has tremendous brand loyalty among the businesses with which it works offering them premium pricing power. Brand loyalty can offer a business a tremendous competitive advantage as well as increased leverage. Major customers include AIG and MetLife.
Discounted Cash Flow Analysis
A discounted cash flow analysis using a moderated growth rate at half of the current one gives an implied fair value of 35 dollars a share. This represents a margin of safety of nearly 30 percent. This is also using half the current growth rate and conservative projections fair value could be much higher.
Valuation is overly reasonable likely for several reasons among them are:
1. Highly acquisitive nature
It makes accounting that much more difficult and although it shows a dedication to growth and capturing market share it makes some question the growth as well.
2. Prior accounting deficiencies named
Although it was several years ago the comments about the company’s internal controls have likely scared away some investors.
3. Low effective tax rate
The current one is only 4.25 percent as their tax loss carry forwards expire it will likely go higher.
Despite some risks strong growth, great management, a growing brand and a reasonable valuation are among the many reasons why Ebix is a compelling buy for your portfolio today.
Disclosure: I am long EBIX.