Why Now Is the Right Time to Buy Ebix

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Ebix (Nasdaq: EBIX). Are institutions bullish or bearish when it comes to this supplier of software to the insurance industry?

Foolish facts

Data current as of Dec. 16.

Badly in need of an efficiency overhaul, Ebix is helping the insurance industry remake itself. The company's software allows brokers, carriers, underwriters, and reinsurers to share information and streamline byzantine processes.

But there's more to Ebix than record-keeping software. In a recent interview with our Rule Breakers team, CEO Robin Raina said exchanges now account for 71% of the business. (Exchanges are online marketplaces for clearing transactions.)

If that sounds like a ripe business, it is. Revenue is up 40.3% annually over the past five years. Normalized profits are up 73.7% over the same period, according to Capital IQ. Competitors haven't been able to offer a comprehensive enough offering to stunt growth.

"Honest, aggressive and driven. Snapping up any and all competitors that make sense for the long-term. The moat gets wider and deeper. Plowing profits back into the company --who could possibly want a dividend when that money will be returned many times over," wrote Foolish investor oldpbass earlier this week.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Big Returns seems to be exactly what Big Money investors are betting on. The top 25 have nearly doubled their investment in Ebix since 2007. Some institutions took profits in the first quarter of this year -- Fidelity, notably -- but buying is up nicely in the months since.

They've got good reason to like the stock at present levels, even if the Street calls it expensive. Why? Analysts have underestimated Ebix's earnings in all but one quarter over the past two years. And the gulf is getting wider. According to earnings.com, Wall Street's consensus was $0.11 per share lower than what Ebix reported in the third quarter.

Competitor and peer checkup

Source: Capital IQ. Data current as of Dec. 16.

When measured against peers, Ebix has a good but not great ownership profile. WebMD Health and Lawson Software both look better because of lower institutional ownership. They've left room for Big Money buyers to move in and buy shares.

Yet I'd still take Ebix over either of these two -- or any other stock in this table, save for Oracle. (I've owned shares of the database king since 2004.) Why? Raina is not only CEO; he's a longtime Ebix employee and the company's largest shareholder.

A big market opportunity. An engaged owner. Outrageous growth. Ebix is about as close to the perfect stock as it gets, and I believe it still has room to run. That's why I've rated the stock to outperform in my CAPS portfolio.

Do you agree? Disagree? Let me know you would rate Ebix using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

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