Seeking Alpha • Sep 27
Ebix: Affordable Bet On The Fast-Growing Fintech Industry
Summary
The massive -44.80% 6-month price performance of EBIX has made it very affordable. It touts a TTM P/E of 8.7x.
The average TTM P/E of EBIX’s sector peers is 20.59x. EBIX’s net income margin is 57% higher than its peers.
EBIX is still small but worthy investment in the fast-growing, 20.3% CAGR fintech industry.
EbixCash is big in India. India’s fintech market is predicted to generate $200 billion revenue by 2030.
Ebix's handicap is that it has numerous business channels. This could be the reason why it has lower gross margins than its peers.
If you want to profit from the rapidly growing $160 billion fintech industry, consider going long on Ebix, Inc.(EBIX). The -44.80% price decline has made EBIX very affordable. It is now trading less than $20 – far below its 52-week high of $44.42.
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The market cap of Ebix is now less than $610 million. A little over four years ago, EBIX's market cap was greater than $2.7 billion. Ebix is a fallen angel, it could be a future takeover target of bigger fintech companies.
Yes, EBIX could be a falling knife along with many tickers. The Dow chart below illustrates that Ebix’s business performance might not be the problem. Emotional investors are pulling down the stock market in general. Even the biggest fintech company, Visa (V), has -18.21% six-month price return.
CNBC.com
Don’t Be Intimidated By Big Dips
Thanks to the universal stock market fear and panic, EBIX could be purchased at just 7.12x forward P/E. The opportunity here can be gleamed by carefully studying the chart below.
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EBIX is a perfect value play because its forward valuation is 65% lower than its sector peers' average. The TTM Price/Sales valuation of software solutions provider Ebix is only 0.61, 77% lower than its peers’ average.
I think the significant undervaluation of EBIX is unjust. This company's net income margin is 6.97%, 66.7% higher than its sector peers. Ebix Inc. is consistently profitable since 2010. Consistent profitability in a very competitive and crowded industry should be rewarded.
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The negativity over EBIX might be because its 5-year net income margin used to be 16.84%. My takeaway is that stiff competition is forcing it into a pricing war to gain more customers. Lower fees for its fintech software solutions is emphasized by Ebix’s 31% TTM gross profit margin. This is again notably lower than its 5-year average of 54.27%. These dips in margins are forgivable. Sacrificing gross/net margins to gain or protect market share is a valid business tactic in my opinion.
Ebix is a small fish competing against giants like Visa or PayPal (PYPL). Lower pricing is an easy way for Ebix to attract customers away from its much larger competitors. Further, growth-focused investors likely know that smaller companies possess greater growth potential than firms like Visa. Consequently, Ebix outperforming the growth rates of its bigger rivals should attract more bulls.
Too Many Business Segments Is Not Ideal
The extremely diversified software solutions of Ebix is confusing. A small company that is dipping into so many pies is probably not very attractive to defensive investors. However, I think the varied services and partners of this company means its growth is all but assured.
ebix.com
Ebix could probably go back to posting a revenue CAGR greater than 15% if only management starts focusing on its most promising channels. My decades of being a freelance multimedia artist has taught me that focusing on 2 or 3 markets is the best way to make money.
EBIX boasts a median 5-year revenue CAGR of 25.39%. Unfortunately, it is now only 9.07% – lower than Visa’s 24% and PayPal’s 10.66%. The fault in EBIX’s star could be an over diversified product lineup. This company was founded in 1976 and yet it never became a $5 billion company. We can blame it partly on too many business segments in my opinion.
ebix.com
The R&D and marketing costs of so many services/solutions could also be the reason for its lowly 31% gross margin. A laser focus on insurance and finance channels is desirable. There's no urgent need for that travel solution and education channels. I think they should be sold to fortify the insurance, finance, and consulting channels.
On the other hand, having so many business segments could also be why it continues to survive. My takeaway is that a streamlined product portfolio could boost Ebix's market share in the fintech business. The 20.3% CAGR of this particular business could keep attracting big firms and startups.
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EbixCash Is Very Promising
My favorite reason to endorse this stock is EbixCash. Low fees of digital transactions/remittances eventually add up to substantial amount. EbixCash only needs to attract enough of a number of customers.
EbixCash is big in India. This is very important because India is experiencing exponential growth in fintech services. It is estimated that India’s fintech technology services market will generate revenues of $200 billion and $1 Trillion AUM (assets under management by 2030).
ebixcash.com
Those 650k retail outlets in India make EbixCash a very important player in India’s local and cross border remittances and digital payments. India persists as the world’s no.1 country in terms of international remittances received. It received 89 billion in inflow money transfers.