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No matter how bad the situation gets with Exela Technologies (NASDAQ:XELA) stock, some enterprising financial traders might hope for a miraculous recovery. As the old saying goes however, hope isn’t a viable investment strategy. Sure, Exela is trying a few tactics, but the company’s financial problems have become unmanageable.
Exela Technologies might sound like a high-conviction business at first glance. The company, which is based in Texas, specializes in business process automation (BPA). Since automation and artificial intelligence are top-of-mind on Wall Street, one could expect Exela to thrive in 2023, but that doesn’t mean it will.
Sure, the “bot revolution” is in progress and maybe Exela Technologies is part of this trend, but it can’t prosper if it’s digging a deep financial hole. So, cautious investors should think about staying away from XELA stock this year.
Cost-Cutting and New Funding Won’t Help
Exela Technologies is trying some of the oldest tricks in the book to shore up its finances. Ultimately, these tactics will probably be too little, too late for the company.
For instance, Exela Technologies proudly announced several cost-reduction measures. Among the company’s plans are “headcount optimization” and “real estate reduction.” Hence, Exela will have to operate with fewer workers and less space, which won’t be easy. The company expects to achieve savings of $65 million to $75 million this year.
Another old trick is to get a quick capital inflation as debt. Recently, Exela Technologies disclosed $51 million worth of new funding. Don’t assume that this is free money, though.
It’s really just an addition to the company’s debt load. The funds from Exela’s “new securitization facility” will have to be paid back with interest.
XELA Stock Investors Have Numerous Problems to Worry About
Exela Technologies’ most recently published Form 10-Q revealed that the company had around $1.1 billion worth of total debt. Thus, $51 million of new funding (which will have to be repaid with interest) and $65 million to $75 million of cost-cutting won’t make a big enough difference.
Meanwhile, XELA stock has fallen very far, very fast. The Nasdaq exchange has already sent Exela multiple noncompliance notices. The exchange could delist the stock because it has closed below $1 for a prolonged period.
To remedy this situation, Exela Technologies is using the same old playbook that many other troubled businesses have used. The company disclosed that Exela’s shareholders will vote on a proposed reverse stock split.
This potential reverse share split would be “at a ratio in the range of 1-for-100 to 1-for-200.” It’s a quick fix that won’t actually improve Exela Technologies’ fundamentals, and some people will see it as a sign of desperation.
What You Can Do Now
Exela Technologies is unprofitable and is adding to its debt burden. Plus, the company is reducing its costs, but this probably won’t be enough to fix Exela’s financial issues.
Finally, Exela Technologies’ proposed reverse share split might help the company avoid an immediate delisting, but that’s not a permanent solution. All in all, there are many problems for prospective XELA stock investors to consider, and they should look for other technology businesses to put on their watch lists.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.