I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer too. But even I have to admit some growth stories are bogus, hence this regular series. We'll be taking a closer look at many of the market's great growth stocks to see which of them show real, numerically relevant signs of sustainability.

Next up in our series is Ebix (Nasdaq: EBIX), a supplier of software and e-commerce services for insurers that this week announced a $66 million acquisition of smaller peer A.D.A.M. Everything the company does is aimed at enabling insurance transactions.

Foolish facts



CAPS stars (out of 5)


Total ratings


Percent bulls


Percent bears


Bullish pitches

128 out of 131

Highest rated peers

Dynamics Research (Nasdaq: DRCO), AUTONOMY, Sonic Foundry

Data current as of Aug. 30.

If Fools like Ebix it's because the company has proven itself. "They have strong fundamentals which to me indicate long, continued, steady growth. I'm happy to see them move that way," wrote Foolish investor wdobrien recently. "The current volume of shorts is a near term issue. Perhaps we get a short squeeze, perhaps we don't. Regardless, this stock does not have a polar event in the future that will send it way up or way down, and insurance exchanges are not 'sexy'."

Like many, this Fool is holding. Insiders are, too. They still own more than 2% of the business, and large institutional sellers were last seen more than a year ago -- when the stock was trading for more than $25 a share.

The elements of growth


Last 12 Months



Normalized net income growth




Revenue growth




Gross margin




Receivables growth




Shares outstanding

34.8 mil.

34.4 mil.

29.8 mil.

Source: Capital IQ, a division of Standard & Poor's.

The data in this table makes me nervous:

  • Receivables have grown faster than sales for two years in a row. Adding A.D.A.M.'s clients to the mix won't make it easier to reverse this trend.
  • Gross margin is also down. The totals are still high, and that's good, but as an investor I tend to track trends. My favorite businesses demonstrate pricing power. Right now, Ebix seems to lack that.
  • Revenue growth has been good, but lumpy. I'd rather see a consistent uptrend given the minor issues we've just identified.

Competitor checkup


Normalized Net Income Growth (3 yrs.)

Aetna (NYSE: AET)






InsWeb (Nasdaq: INSW)

Not material

Sources: Capital IQ, Yahoo! Finance. Data current as of Aug. 30.

Going by this table, Ebix stands alone as a fast mover in a slow-moving industry, making it an almost picture-perfect example of what results when disruptive technology changes a business for the better.

Grade = unsustainable
Still, there are too many questions and not enough answers from the second table to call this a sustainable grower. Don't read too much in that; I still think the short sellers are wrong about Ebix. This isn't a business in trouble -- it's just not growing as fast as it once did. Selling a good, if unspectacular, grower like Ebix when it's trading for 23 times earnings is premature.

Now it's your turn to weigh in. Do you like Ebix at these levels? Would you make it one of our 11 o'clock stocks? Let the debate begin in the comments box below, and when you're done, click here to get today's 11 o'clock portfolio pick.

You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.