Ebix Inc. (EBIX), the Atlanta, Georgia-based purveyor of on-demand software and e-commerce solutions to the insurance industry, recently beat analysts EPS estimates despite missing revenue expectations.

RECENT ACTION

The stock closed this past Friday at $19.81, up 21 percent year to date. Shares of the $736 million dollar company are trading above the 50, 100, and 200 moving averages of 17.94, 17.11, and 18.97, respectively. The stock traded as high as $24.90 in September, but has been dogged by legal issues, both rumored and realized.

A Bloomberg article on rumored SEC probe of accounting practices published in November sent shares tumbling to around $16.00, an allegation CEO Robin Raina has vehemently denied. Two weeks ago, Microsoft filed suit in the U.S. District Court in Atlanta alleging copyright infringement and contract breach surrounding their licensing of Microsoft products. In the midst of all this legal turmoil, the company announced it would be acquired for $820 million by a Goldman Sacks affiliate. The deal, expected to close sometime in the third quarter, will make Ebix a private company.

INSTITUTIONAL HOLDINGS

Chuck Royce’s Royce & Associates top the list of institutional holdings at 298,400 shares, having recently doubled their stake in the company. Next on the list is Brian Bares’ Bare Capital Management, who recently upped their holdings by tenfold. Other hedge fund holders include Millenium Management, Renaissance Technologies, and the D.E. Shaw Group (Source: Insider Monkey).

COMPANY OUTLOOK

While the company has yet to be officially investigated for any wrongdoing, the Microsoft suit and SEC rumors are just the latest in a laundry list of negative publicity. Earlier this month, Bloomberg published an article stating the IRS was launching an official investigation into Ebix’s booking revenue from domestic sales to overseas units in India and Singapore, where it enjoys a substantially lower tax rate.

Prior to rumors of impropriety, Ebix was on track to be Wall Street’s tech darling. Both Fortune and Forbes magazines recognized the ISV as one of the nation’s fasted growing tech companies. Over the past decade, revenues have grown from just $12 million to nearly $200 million a year, while net income rose to $70.1 million in 2012 from just $500,000 in 2002 (source: Bloomberg).

While the company has time to seek other suitors, it would appear unlikely it will find other interest parties. Equally unlikely is the prospect of the board refusing Goldman’s offer of $20 per share to take it private.

MY TRADE

My trade: Sell the July 20-19 Put Spread for $0.40

Risk: $60 Per 1 Lot

Reward: $40 Per 1 Lot

Break-even: $19.60

THE GREEKS

Delta: Long

Gamma: Short

Theta: Long

Vega: Short