XELA Stock: A Turnaround Story or a Dead End?
From a capital raise to expenditure reductions and even a possible share split, it seems like Exela Technologies (NASDAQ:XELA) is trying anything and everything to save XELA stock from extinction. However, while prospective investors can watch with amusement from the sidelines, there’s no need to take a share position in Exela Technologies.
Texas-headquartered Exela Technologies specializes in business process automation (BPA). This field might be adjacent to artificial intelligence (AI), which is a red-hot market in 2023. So, does this mean it’s time to take a chance on Exela?
It’s your money and your decision, but consider the risks. Exela Technologies’ best efforts won’t likely result in a sustained turnaround for the company. Sooner or later, you should expect Exela to run into a dead end, and the shares to be dead money.
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XELA Stock Continues on Its Painful Path
Currently below 10 cents per share, XELA stock can’t seem to get anywhere near the $1 level, which is crucial. It’s important because Exela has received multiple noncompliance notices from the Nasdaq exchange, which may delist the stock if it continues to close below $1.
A great business might be able to overcome this type of problem by demonstrating strong value to the shareholders. Yet, even if you’re bullish on the BPA market generally, it’s awfully hard to defend Exela Technogies as a viable business enterprise.
Exela’s most recently published quarterly financial report points to the company’s declining revenue, widening net earnings loss and diminishing cash and cash equivalents. Moreover, Exela Technologies failed to make the interest payments on some senior secured notes. With all of this in mind, let’s see what the company’s doing to save itself from complete ruin.
Three Hail-Mary Attempts That Won’t Save Exela Technologies
First of all, Exela Technologies announced $51 million of new funding. This comes in the form of a credit line from B. Riley (NASDAQ:RILY). It’s not free money for Exela, however, as the “The new securitization facility … bears interest at a per annum rate of one-month Term SOFR plus 7.5%.” Hence, the company will have to pay back more debt now, as well as the interest on that debt.
Second, Exela Technologies revealed some cost-cutting measures the company plans to implement. These will include “headcount optimization” and “real estate reduction,” so expect Exela to have fewer people and less space with which to run the company. Exela Technologies expects “savings in the range of $65 to $75 million for 2023,” but that’s immaterial compared to the company’s roughly $1.1 billion worth of total debt (per Exela’s most recently published Form 10-Q).
Finally, Exela Technologies is considering what countless other companies have done when they’re truly desperate. Specifically, the company is proposing a reverse share split.
Sadly, it has come to this. Exela Technologies announced that, on May 4, the company’s shareholders will vote on a potential reverse stock split “at a ratio in the range of 1-for-100 to 1-for-200.” This looks like a last-ditch effort to salvage a relentlessly sinking stock, not something that a healthy business would do.
At this point, I’d like to quote InvestorPlace Financial News Writer Samuel O’Brient. In a recent article, he wrote, “Experts have made it clear that when a company pursues a reverse stock split, investors should typically worry.” Worrying isn’t the only option here, though. Exela Technologies’ investors can also cut their losses before they get worse.
XELA Stock Isn’t Worth the Risk
It might seem harsh to call XELA stock a dead end, but look at the foregoing facts. Exela Technologies is going through the playbook of other businesses that were eventually delisted from the Nasdaq exchange.
So, don’t count on a turnaround story playing out for Exela Technologies. Instead, feel free to find other tech-focused investable assets with less risk and better growth potential.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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