Ebix Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of insurance software vendor Ebix (Nasdaq: EBIX  ) were minding their own business on a humdrum day, until all hell broke loose and the stock fell more than 26% on truly massive trading volume in the early afternoon.

So what: This stock suffered an entirely inexplicable fall a couple of weeks ago, but this time there's a real driver behind the action. A scathing three-part article that eviscerates Ebix for being overpriced and possibly fraudulent hit the news feed just as the panic-selling started, showing that investors were taking that message to heart.

Now what: I'd think twice before acting on that damning report. For one, the articles point to CEO Robin Raina as a liability while our own Motley Fool Pro analyst team sees him as an asset, and the Rule Breakers team calls him a successful game-changer. But give the report a read and make the call yourself. Keep in mind it was written by an anonymous writer who disclosed a short position on Ebix and has every intention to profit from whatever market moves the article might trigger.

Interested in more info on Ebix? Add it to your watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Ebix is a Motley Fool Rule Breakers selection. The Fool owns shares of Ebix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.


Read/Post Comments (44) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2011, at 4:40 PM, CrankyTexan wrote:

    The short seller who wrote the Seeking Alpha article is also using a phony firm name called "Copperfield Research". No such firm exists.

  • Report this Comment On March 24, 2011, at 5:32 PM, pebbles444 wrote:

    After such a huge drop, why is Ebix continuing to sell in after hours trading? Shouldn't it be climbing back up? It had an enormous drop already. What's up with this action? Seems really suspicious to me.

  • Report this Comment On March 24, 2011, at 5:40 PM, ozzfan1317 wrote:

    Yeah an anonymous no report with no real sources if I had the money I would be buying more. This "Article" from seeking alpha is ludicrous.

  • Report this Comment On March 24, 2011, at 5:48 PM, midnightmoney wrote:

    I am most probably naive, but the charges are serious and people have reacted drastically. In the wake of the plunge that went down today Rob Raina needs to step up and respond, clarify, and put investor jitters to rest by concretely debunking the myths, if that's what they are, and which lots of people are obviously taking seriously. The high road doesn't exist here, he's gonna have to roll up his sleeves. Either that or admit they have a problem. If no such skinny be forthcoming, I'll be compelled to sell too. I work too damn hard for my money to see it just thrown to the wind.

  • Report this Comment On March 24, 2011, at 5:52 PM, Momentum21 wrote:

    Ebix Inc. (EBIX, $22.52, -$7.20, -24.23%) shares plunged after a report on Seeking Alpha, written by someone under a pseudonym and shorting the stock, called the company "a house of cards." The piece alleges the company has misrepresented its business and organic growth, while also raising questions about its CEO, auditing and valuation. Ebix CEO Robin Raina told Dow Jones, "Our financial health is better than ever." He declined to address individual allegations but called the piece a smear campaign "written by people with a clear plan to create panic and drive the price down."

    http://online.wsj.com/article/BT-CO-20110324-713314.html

  • Report this Comment On March 24, 2011, at 6:01 PM, pebbles444 wrote:

    All I can say is after a tremendous drop like this one, I would hope it would be a major buying opportunity. After all, it's a "best buy" now stock on Rule Breakers.

  • Report this Comment On March 24, 2011, at 6:04 PM, midnightmoney wrote:

    thanks for the info Momentum

  • Report this Comment On March 24, 2011, at 6:39 PM, fogcityinvestor wrote:

    http://www.cnanalyst.com/2011/03/top-10-software-stocks-with...

    This article came out yesterday!

    Ebix, Inc. (NASDAQ:EBIX) has the 3rd highest short interest in this segment of the market. Its short interest is 21.3% of its total shares outstanding. Its Days to Cover is 10.88, calculated as current short interest divided by average daily volume.

    Looks like they had to bring out this article or cover their short interest in 11 days! EBIX hit a 52 week high today so it was their perfect oppurtunity to make millions by shorting the stock. Hope they all get arrested and skinned alive.

  • Report this Comment On March 24, 2011, at 6:57 PM, murwl wrote:

    I was hoping all the fools could get together and track down this person or more likely persons who delibertly filed this phony article with a phony firm and does not even have the guts to attach his real name or real address.to this completly false story just to make him and his short friends a ton of money and to screw all of us "fools" out of our money. Give me 5 minutes alone w/him to get my 10 cents worth of satisfaction. Is there nothing we can do? I am hoping The Motley Fools can do something..!!!!!!!!!

  • Report this Comment On March 24, 2011, at 7:12 PM, Oboer123 wrote:

    I think Mr. Bylund owes us a little better than "But give the report a read and make the call yourself"

    There has been considerable research done by the Motley Fool on this stock. We pay for this information and use it to help make buying decisions. It has to be a current "Best Buy Now" for a reason.

    Help us out here a little....there is a lot of fear and panic going on. You guys must be current on the analysis to put it up on the "best buy now list" before the fall.

  • Report this Comment On March 24, 2011, at 7:52 PM, midnightmoney wrote:

    Color me vexed. The report comes out today and the share price walks off a cliff. If the stock is that temperamental, that incredibly spookable, I'm not so sure I want to be involved any longer.

    I went to the ebix site again, and I'm looking at it in a different light. It hasn't changed or evolved since I bought the stock. It's flat and unengaging, and they still have the news plastered across the home page that Rob Raina had an interview with leading mf analysts sometime last fall. (No offense, it was a good interview) But shucks, Is that still the only news they have to offer? What I'm saying is the website is, for someone like me, ebix itself, but it's static and strange and leaves me not knowing what to think or feel.

    Beyond that I don't believe that all the dirt they drubbed up in today's three alarm report can be dismissed like just another pigeon. At the end of the day the only counter we have is what the company itself offers, which at this point is scant. Tell me, why has ebix had so many auditors in the past 7 years? And why have those auditors walked away?

  • Report this Comment On March 24, 2011, at 7:59 PM, Borbality wrote:

    definitely getting spooked on this one. i put in a stop-loss and if it gets that low I'll just try not to think about this stock anymore.

  • Report this Comment On March 24, 2011, at 8:15 PM, PoorBloke wrote:

    Me too. The stop loss is in since even though this may be a short scam then I won't lose my initial investment.

    I do think that TMF could and should do more to analyse and inform us, but at the moment their advice seems to be "Decide for yourself" which isn't very helpful.

    Cheers, PB

  • Report this Comment On March 24, 2011, at 8:25 PM, Borbality wrote:

    yeah I have to admit it's not that reassuring to read "hey you better take a look at this and decide for yourself." Definitely shakes my confidence in the Rulebreakers best buys. This was my first purchase of an individual small cap!

  • Report this Comment On March 24, 2011, at 8:29 PM, fogcityinvestor wrote:

    Go to the EBIX website and read the interview with the folks from Motley Fool. here is an interestering excerpt.

    Thiel: Robin, just on the general theme of skeptics, it is certainly notable that there is a fairly

    high level of short interest in Ebix, and I just wonder if you have any thoughts on why that is or

    what you think about that?

    Raina: Well, I think first of all, I respect the shorts. I am not going to go and beat them in any

    way because I feel we live in a democratic country and in a democratic country, some people

    think President Obama is a genius and some think exact opposite of him. I don't know which

    one is true. Time will tell. His results will show whether he is making dumb decisions or he is

    making the smartest decisions in the world.

    So from my perspective, I think of the shorts the same way. They are making decisions for

    themselves. I would like to believe they are making the wrong decisions, but when you look at

    it, ultimately I have gone through some of the documents and so on, and one of the things that

    has been talked about is Ebix has had frequent auditor changes. That has been one of the main

    topics of discussion. The implication is that Ebix probably has had bad relations with their

    auditors. I will address that as directly as I can.

    Who has been our auditor in the last, let's say, eight years? In eight years, our international

    auditor was BDO. What they don't remember is when we moved from BDO in the U.S. to another

    firm. BDO is still our auditor for six years-plus in all other countries where they were. If we had

    bad relations, BDO would not be our auditor in Australia, Singapore, Sweden, and so on. They

    are still our auditor.

    Has another previous auditor, HA&W, had bad relations with us? I will tell you something which

    you probably don't know. The main partner on our account, with HA&W, just nominated my CFO

    Robert Kerris for the CFO of the Year in Atlanta Business Chronicle. That doesn't look like a

    partner who was unhappy with us. He was the partner throughout on our account. Also, HA&W

    still works for us. They do our FAS109, help us with FIN48, and so on.

    Our present auditors, I think I will let them talk about it, but we have a fantastic relation with

    them. They recently nominated us for an exemplary client award. The website is

    ClientAdvisorAwards.com. So I think that was one of the topics that was talked about by the

    shorts.

    Then there are others; I could go into and address each one of them. For example, one was the

    same issue about maybe their cash flows aren't catching up with their net income, and that is

    not true. I just gave you the answer to that one.

    10/4/2010 The Motley Fool: Print Article

    www.fool.com/server/printarticle.aspx?… 8/9

    I also would like to say to your community, a good way to look at whether a stock should be

    shorted is to ask, what is the management? And, what is the CEO doing with his own stock? No

    senior manager of Ebix is in a selling mode in the last four years. Ebix, when I joined, was a

    few-cent stock. My buying prices are a few cents. When you look what the price has done, from

    there to here, there is a big difference.

    How much stock have I sold in 10-plus years? I think I have sold slightly higher than a hundred

    thousand shares. I have donated a bit to charity. Everything else I have held on to, which

    means I had 4.5 million shares. I think I still own 4.2 million shares after being here for almost

    10-plus years. I think either I am absolutely stupid or I am a genius. Time will tell what am I, and

    I am not honestly very sure about what I am. But I know that I believe in myself, and I believe

    in the company, so I am holding on to my stock.

    Legal Information. © 1995-2008 T he Motley Fool. A ll rights reserved.

  • Report this Comment On March 24, 2011, at 8:34 PM, DoesMIWork wrote:

    If Seeking Alpha is right, then we are fools to follow the Fool and their Foolish Rule Breaker BEST BUY recommendation.

  • Report this Comment On March 24, 2011, at 8:36 PM, midnightmoney wrote:

    Sorry to beat a beatable horse, but these are the first two sentences from the ebix website's introduction to what it does:

    "A long history of designing innovative solutions has earmarked an era of excellence in the history of Ebix. It is committed in its endeavor to answer the ever-increasing needs of Insurance organizations all over the world."

    Huh? What? Come again?

  • Report this Comment On March 24, 2011, at 8:38 PM, CrankyTexan wrote:

    DoesMIWork, you are going to trust an ANONYMOUS short seller on Seeking Alpha who is using a phony firm name?

  • Report this Comment On March 24, 2011, at 8:44 PM, idsclark wrote:

    The cash flow statement does look very odd, with net income exceeding CF from Operations for the past 3 out of 4 years.

    Plus EBIX is a notorious acquisition seeker. Who is to say how much, if any, organic growth is occurring.

  • Report this Comment On March 24, 2011, at 8:49 PM, midnightmoney wrote:

    thanks fogcityinvestor!

  • Report this Comment On March 24, 2011, at 9:23 PM, murwl wrote:

    I agree thank you fogcityinvestor. I will keep my shares for now and perhaps buy a few thou more if there is a little more clarity coming out tomorrow.. I do wish Mf rulebreakers would give us a little more to go on than just decide for yourselves.

  • Report this Comment On March 24, 2011, at 10:49 PM, Momentum21 wrote:

    There are a few posts on the Rule Breaker discussion boards about it but the bottom line IMO is that one has to assume a level of risk when investing in ALL stocks. I can't speak for that particular team of analysts but you can't just expect "free money." They tell you up front that each RB pick is typically "Grossly Overvalued According to the Financial Media" so headline risk is always a factor.

    If a company is up to fraudulent activity they are not going to leave a trail of breadcrumbs. You can 't put that on any analyst to sniff out without a doubt.

    I am long only as of today's drop because I think the odds of these "articles" having merit are slim. The survival of EBIX is not going to ride on an anonymous shorties' slam piece.

    If I were long fundamentally I would "wait and see." No one ever made money by panicking...I know it is a Jim Cramer line but it is definitely one of his better pieces of advice.

    As much as you may want to hear it, no one worth listening to is going to say that everything is going to be OK with your investment. These are the bumps in the road that test your resolve. You need to make the call because no one else lives in your shoes.

  • Report this Comment On March 24, 2011, at 10:57 PM, CrankyTexan wrote:

    Momentum21, when is the last time you saw a stock drop 25% in one day because of an article from a fake investment firm?

  • Report this Comment On March 24, 2011, at 11:04 PM, Momentum21 wrote:

    CrankyTexan - I can't point to a situation like it recently but I can't recall the muddy waters details...those stocks (CCME and RINO) were halted, correct? It has been a strange week.

    What are you saying?

  • Report this Comment On March 24, 2011, at 11:33 PM, pebbles444 wrote:

    I have to comment again....seriously, this drop was huge. It's very hard to feel "safe" being long any stock when it can "tank" that much in just a few minutes. This is a "buy now" Rule Breaker stock....I'm guessing it's going to rebound???

  • Report this Comment On March 25, 2011, at 1:23 AM, goldminingXpert wrote:

    CBEH tanked 30% on an anonymous Seeking Alpha article last week. Not all that unusual. Don't invest in companies that use bizarre accounting methods and don't pay any significant amount of taxes (in China or America) while reporting rosy profits.

  • Report this Comment On March 25, 2011, at 5:03 AM, GustoDuel wrote:

    Dear friends. Mootley Fool is no doubt well intended. But they make big mistakes (too). Just read their former recommendation on FMD to see what I mean. Who bought FMD then today is still in pain ...

    http://www.fool.com/investing/small-cap/2007/05/31/first-mar...

    .... so better judge EBIX for yourself not for what MF says.

  • Report this Comment On March 25, 2011, at 7:33 AM, benedekgb wrote:

    I will say this on record:

    The article on sa has no merits. It doesn constitute fraud individually or put together. I am not saying ebix is not a fraud, but this article is well written but without substance. Zero substance, pure hype. Makes the same assumptions that were made months ago. They had no merit then, why would it now?

    Furthermore:

    The ceos responce is spot on, you cannot battle with idiots. There is nothing he can do.

    The author is hidding. Why? So that his *track record will not come into question when he makes a false claim about netflix soon.

    Text case short and distort.

  • Report this Comment On March 25, 2011, at 7:57 AM, benedekgb wrote:

    I will further elaborate:

    The report itself is nothing more then a house of cards.

    why?

    - All the issues have been bought up over and over again.

    It contains no new material information.

    What is the report saying?

    It doesnt go so far as the insinuate that ebix is a fraud, you have to read between to line to get to that conclusion, what the writer is basically saying:

    " in the future (2-3 yeard from now) ebay may restate its estimates, or may slow its growth, which in turn could lead to its collapse (?).

    Understand this:

    The above statement can be said for 99% of US companies. Its a joke.

    And I am sure the author is laughing and delighted with his result. I dont think even he anticipated to market to be so jittery.

    And you know what?

    I laugh along with him. Weather you are long or short, you should not be duped so easily be either side.

    I write this in the understanding, that ebix maybe a fraud (just like any other company) but the report has no new info and doesnt consitiute fraud in itself.

  • Report this Comment On March 25, 2011, at 8:03 AM, TMFZahrim wrote:

    For those who say my little article here should have covered the entire issue and told you what to do, let me point out again what this particular article series does:

    "Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis."

    I'm taksed with writing up salient points in about 100 words for a quick reaction, not an 800-word analysis. Furthermore, I don't work for the Rule Breakers team, nor Pro, or any of the other newsletters -- feel free to grab a free trial to any of these services (http://www.fool.com/shop/newsletters/index.htm?source=isiedi... to see what our RB and Pro analysts and subscribers are saying about this. It's not my place to pass out premium content in free articles, you know.

    Anders

  • Report this Comment On March 25, 2011, at 8:05 AM, benedekgb wrote:

    REMEBER I WAS FIRST TO CALL THIS A BLUFF and what it is. The report itself is a HOUSE OF CARDS!

    Just read the title: ebix IS NOT A FRAUD, but a house of cards. What exactly is a house of cards? Who knows. This is a funny one. Made my day!

  • Report this Comment On March 25, 2011, at 11:22 AM, CrankyTexan wrote:

    TMFZahrim, how classy of you. The stock fell 25%, and instead of reassuring investors, you use the chaos to try to sell them a product. Not cool, dude.

  • Report this Comment On March 25, 2011, at 1:20 PM, midnightmoney wrote:

    Cranky,

    What do you want the analyst to do, come and tuck you in at night? It's not his job to reassure you and you won't find any other service on the net talking about ebix at all. The fool provides a place where people can exchange information when events like this happen. If find it useful and positive and haven't found anything like the investor community that exists here elsewhere on the net.

  • Report this Comment On March 25, 2011, at 1:34 PM, CrankyTexan wrote:

    midnightmoney, you are the one who wrote, "Rob Raina needs to step up and respond, clarify, and put investor jitters to rest". Looks like you are the one who needs to be tucked in.

  • Report this Comment On March 25, 2011, at 1:42 PM, Borbality wrote:

    I just have to add that the Rulebreakers discussion on this EBIX stuff is really impressive. Good service!

  • Report this Comment On March 25, 2011, at 2:37 PM, midnightmoney wrote:

    but that IS Raina's job, cranky

  • Report this Comment On March 25, 2011, at 11:52 PM, sodapops wrote:

    The three part report was written by somone with a better than average understanding of accounting. The shorters may be vultures but vultures mostly prey on the sick and injured.

    The report did point out to me a mistake that I made when I bought my Ebix shares. I usually check the company's tax rate. Average for the S&P 500 is 28.25% so a better company should be paying a higher rate, say 34%. I missed that this company is paying around 1%. I had read about the auditor problems and could see that Ebix was a serial acquirer. The taxes issue on top would probably have caused me to look elswhere.

    Even if there are no shenanigans with the taxes, at some point NOL carryforwards etc. have to run out and bingo, earnings drop by about 30%. What would that do to the stocks price?

    I sold my shares in Ebix today for a 23% profit. Too many questions for a lone individual investor. There lower risk investments out there that will do just as well without the drama.

  • Report this Comment On March 26, 2011, at 10:52 AM, pebbles444 wrote:

    I did the same as you sodapops....I sold my shares after it went up on Friday. Too many concerns and questions with the accounting issue. I noticed the stock has been "downgraded" from five stars to fours stars.

  • Report this Comment On March 28, 2011, at 11:32 AM, traderpat9 wrote:

    i bought shares of ebix the morning before all the excitement began with trading. do you reccommend that i hold this stock until the dusts settles because what i have been hearing this may have been triggered incorrectly.

  • Report this Comment On March 28, 2011, at 1:02 PM, ButterflyOne wrote:
  • Report this Comment On March 28, 2011, at 1:05 PM, DoesMIWork wrote:

    IMHO, the constant switching of auditors means that something is afoul. Shoot now, ask questions later. Accounting fraud, or even whiff of it is an automatic sell rule for me. This is a major strike against the RB Fool.

  • Report this Comment On March 28, 2011, at 1:16 PM, Domeyrock wrote:

    all you short sellers will be sorry after Ebix's investor conference on Friday. Just as short sellers of Netflix, Green Mountain Coffee and Salseforce sellers were sorry. Patience is a virtue. And if you know what you own and ignore the price action, you'd have a lot more confidence.

  • Report this Comment On March 28, 2011, at 1:24 PM, Domeyrock wrote:

    Nice find on that report ButterflyOne!

  • Report this Comment On March 29, 2011, at 8:11 PM, ozzfan1317 wrote:

    My blog tells the real story of the tax situation. The piece on seeking alpha was a puff piece nothing more link below.

    http://caps.fool.com/Blogs/the-real-truth-about-ebixs/565667

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