Last night Tim joked in his video about how he could look up what EXBD did, but it was not really necessary, as he liked the chart as a potential long. Just for kicks, I thought I might post a few comments from the fundamental perspective, as that is my bias. I know something about EXBD, even speculated a bit against it in the past.
In summary, they provide “best practices” research to corporations on all aspects of management, marketing, finance, operations etc. Unlike traditional consulting firms that offer customized, labor intensive projects for clients, EXBD sells syndicated research on a subscription basis. Part of the genius of the model is the corporate clients provide the data that is in turn analyzed, packaged and sent back as research output. The business is subscription-based, versus one-off projects, and is cheaper than the full service, feet-on-the-street consulting model.
For several years, the firm grew rapidly, and Wall Street started to value the firm as a “tech” company rather than a service business. Pure service businesses, where the talent walks out the building every night, tend to get lower valuations than say a “software” company where a product can be leveraged through amplified sales without commensurate increases in cost to deliver. EXBD got very frothy, outperforming the S&P 500 by a mile in the middle of the decade.
At $100 plus a share, the valuation was ridiculous for what the company was in terms of revenues and earnings. With the credit crunch, the stock price absolutely imploded. Revenues and profits have been in a nose dive. Corporate customers chopped this expense first.
The question at hand for EXBD is did the implosion overshoot? Is this company a good value now at $22/share? My view is no, but not overwhelmingly so. EXBD is interesting in that it begs the question of what kind of recovery are we experiencing now, and where is it headed? The price of the stock has not quite doubled from the March lows based on optimism that the business will come back as the recession ends.
Price-to-sales of 1.7 and a P/E of 32 might be OK of we go back to robust, sustained economic growth. Looked at from a 2006 lends, it is a good value. What if we double dip, and meaningfully so? What if we have round two of systemic risk? EXBD is not where you want to be. So what is your anchor? The old normal? The new normal?
EXBD is a classic problem in trying to discount the future prospects of an individual company in an uncertain future.
