Exela Technologies Stock: Speculative Digital Tech Play Down 92%, But There’s Hope

Exela Technologies Stock: Speculative Digital Tech Play Down 92%, But There's Hope

Exela Technologies Inc Is a Major Work In Progress

The demand for digital-transformation solutions has been rising rapidly as companies strengthen their digital presence. The global digital transformation market could climb as high as $1.0 trillion by 2025. (Source: “Digital Transformation Market by Technology,” MarketsandMarkets Research Private Ltd., last accessed January 14, 2022.)

The bullish tailwinds provide strong opportunities for many companies.

Speculative traders might want to consider Exela Technologies Inc (NASDAQ:XELA), a provider of cloud-based digital transformation solutions that’s been generating more than $1.0 billion in annual revenues.

But Exela Technologies has significant issues to overcome. While a company with this high a revenue base would suggest it’s a great opportunity, XELA stock has plummeted to $0.60, down by a whopping 92% from its 52-week high of $7.82.

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Chart courtesy of StockCharts.com

The issue for Exela Technologies stock is the company’s execution and massive debt of $1.5 billion, which is nearly seven times its current market cap.

Despite trading at only 0.13 times its consensus 2021 revenue estimate, Exela Technologies Inc is a going concern that will need to avoid defaulting while trying to halt its cash burn and losses.

A look at Exela Technologies Inc’s five-year revenue picture shows the company delivering well over $1.0 billion in annual revenues since 2017.

Fiscal YearRevenues (Billions)Growth
2016$0.79N/A
2017$1.1545.9%
2018$1.5937.7%
2019$1.56-1.5%
2020$1.2917.3%

(Source: “Exela Technologies Inc. ” MarketWatch, last accessed January 14, 2022.)

Analysts estimate that Exela Technologies’ revenues declined to $1.17 billion in 2021, and that the company’s revenues will increase to $1.24 billion in 2022. (Source: “Exela Technologies, Inc. (XELA),” Yahoo! Finance, last accessed January 14, 2022.)

But as I said earlier, the concern for XELA stock investors is whether the company will stay afloat despite its extreme debt burden while trying to slow its losses. Otherwise, there’s not going to be a happy ending.

Offering a glimmer of hope, Exela Technologies Inc managed to produce earnings before interest, taxes, depreciation, and amortization (EBITDA) income in the company’s last five reported years, although its EBITDA declined in 2019 and 2020.

Fiscal YearEBITDA (Millions)Growth
2016$140.4N/A
2017$102.2-27.2%
2018$187.983.8%
2019$138.7-26.2%
2020$82.9-40.2%

(Source: MarketWatch, op. cit.)

Exela Technologies Inc has consistently lost money on both a generally accepted accounting principles (GAAP) and adjusted basis. But there was some improvement in 2020 as the company cut its GAAP diluted earnings-per-share (EPS) loss.

Fiscal YearGAAP Diluted EPSGrowth
2016-$2.25N/A
2017-$6.24-177.3%
2018-$3.5243.6%
2019-$10.55-199.6%
2020-$3.6665.3%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Exela Technologies Inc is expected to report that it narrowed its loss to $0.67 per diluted share in 2021. It’s expected to follow that with a loss of $0.09 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

This is encouraging, but turning things around in time is critical, given the company’s default risk.

Analyst Take

Exela Technologies Inc’s extremely fragile financial situation makes it a highly speculative play that should probably only be traded with risk capital.

But in return, the potential payoff from Exela Technologies stock could be massive if the company can turn its operations around before being overcome by debt.