XELA Reverse Split: XELA Stock Falls 50% Post Announcement of 1 for 20 Reverse Stock Split
|Xela Reverse Split: In this article, we will talk about the XELA stock reverse split, its effect on the share price, and whether it is a buy or sell in the current situation.|
These penny stocks are very tricky to trade. Exela Technologies is one of those. But it was not the penny stock until last year. The stock debuted on Nasdaq on March 27, 2015, at a share price of $588 apiece. It held that level for more than two years and was seen trading at $595.20 up till June 30, 2017. It fell more than 50% in just a quarter and traded at $291.60 on October 6th, 2017. It has been very volatile since then, but the major trend has been downward, with minor spikes seen in between, but all these spikes met with a sharp reversal on the downward side. The last peak was seen at $427.80 on September 28th, 2018, and the share price has been in free fall since then.
We can safely say that Exela Technologies Inc has completely destroyed investors’ wealth and has turned into a penny stock in the last year. On August 3, 2021, it was trading at $64.40 and the share was given -97.76% return in the last year. The fall has made it penny stock, and the management had to go for the reverse split.
In this article we will talk about the XELA stock reverse split, its effect on the share price, and whether it is a buy or sell in the current situation.
Xela Reverse Split: Facts About the Reverse Split
The split is mainly to avoid delisting on Nasdaq- Nasdaq has a minimum bid requirement for each share and that is exactly $1 per share. Due to this downfall in the last couple of years, the share price fell below $1 and as a result, the company received a notice of delisting from Nasdaq on Feb 8th 2022. The timeline started from the date of notice and Exela Technologies had 180 days, that is up to August 8th 2022, to regain compliance with the listing policies. The compliance says that the closing bid price for a particular stock should trade above $1 for ten consecutive business days until August 8th. An additional window of 180 calendar days is given if the compliance is not met before the final delisting of the stock. For XELA stock, it came to headlines on April 11th, 2022, when it decided to cancel the voting on the reverse split in the annual shareholders’ meet and as a result, the stock fell more than 10% in the next three trading sessions. Although after a week, the company announced a share buyback program and the share price went up 13% in the next two sessions, but not enough to pull the share price above $1.
The ratio decided for reverse split is 1 for 20- The reverse split got effective from 26th July 2022. The ratio decided by the board of directors is 1 for each 20 outstanding shares. The share closing price on 25th July was $2.91 (split-adjusted basis), but it opened significantly lower on 26th July, and dropped even further to close at $1.85 (split-adjusted price). As per the commentary of the management, 1 for 20 split is appropriate to meet Exela’s goal of improving marketability and liquidity of the stock and also to meet compliance of Nasdaq listing as discussed above. The reverse split is seen as part of the effort by Executive Chairman Par Chadha’s to squeeze value from the business or so to say to make lemonade from a company that has been delivering lemons over the last few years. Due to the split, the number of shares outstanding and issued has been reduced by a factor of 20, and now there are only 64.8 million shares issued. Technically, reverse or forward split does not change anything about the company, it is just like eating pizza, whether it is eaten in 4 slices or 8 slices, does not matter, as long as the base remains the same.
Xela Reverse Split: Positives about the Business Model of Exela Technologies
The share price is down and out in the last year, falling more than 99 percent. However, there are a few positives about Exela Technologies that can serve as a ray of hope for the investors.
$200 million strategy to reduce debt- Recently, Exela Technologies Inc announced a strategy amounting to $200 million termed a capital deployment strategy meant for debt repurchase and sale of assets. Under the strategy, the company will focus on reducing the overall amount of long-term debt along with repurchasing the common shares. Also, the strategy calls for sales of standalone assets to generate proceeds greater than $200 million. On 13th July 2022, the company reported having received a non-binding proposal to acquire $200 million revenue business unit of Exela. The company is still in discussions and has refused to declare the buyer, but it is a good strategy to reduce overall debt and remain focused on the main business.
Exela announced a new contract worth $6 million- XELA shares are seen climbing more than 15% on August 3, 2022. It was on the backdrop of announcing a new contract worth $6 million over five years. The contract is with a European-based financial firm and the Total Contract Value over the five years is approximately $6 million. Shares opened at $1.29 and closed 15.87% at $1.46. During the after-hours trade, the share further climbed 19.86% and the latest price is $1.75. However, it needs to be kept in mind that the revenue output for Exela is much higher than $6 million. Last quarter only, it reported a revenue of $280 million in sales, with a forecast to do $1.1 billion business this year. So, $6 million should not be a big deal, but bulls are looking for some positive news to push the share price surrounded by bearish sentiments.
Xela Reverse Split: Conclusion: Does reverse Split make XELA stock a buy?
A reverse split has nothing to do with the fundamentals of a stock. Exela Technologies Inc has only initiated the split to save the delisting from the Nasdaq index. Moreover, the company is in bad shape when looked upon fundamentally. It has been losing money for years. It lost $142 million in 2021, on a revenue of $1.17 billion, similarly, in 2019 it lost $501 million on a revenue of $1.56 billion. So, XELA stock is down and out and a reverse split is just the last step to save the embarrassment.
But, at this juncture, management is trying to revive the business. A new contract and capital deployment strategy is just a step in the right direction. But Exela Technologies is still not out of the woods and investors must avoid a stock that has given -97% return in the last year till the business turns profitable.
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