Who is Excela Technologies?

We scratched our heads.

Week after week this tiny software company kept popping up in our search data by financial pros, not just in software, but in broad search results.

If you haven’t heard of them before, you’re not alone. We had no idea who they were.

Believe it or not, there are a group of traders out there who look for cheap, beaten down, low-priced penny stocks. 

The idea is simple. 

The company will have to release some good news in an attempt to boost the stock price…

Or be in jeopardy of delisting. 

Excela Technologies fits the bill.

We believe it will either have a short squeeze soon, delist, or go to zero. 

Find out our thoughts about Exela Technologies (XELA) below…

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Exela Technologies (XELA) Business 

XELA provides transaction processing solutions, enterprise information management, document management, and digital business process services worldwide. 

XELA software and services include multi-industry department solution suites addressing finance and accounting, human capital management, legal management, and solutions for banking, healthcare, insurance, and public sectors. 

It utilizes a cloud-enabled platform, built on a configurable stack of automation modules, and 17,500+ employees operating in 23 countries. 

In addition, the firm has over 4000 global clients. 

In terms of where the company draws its revenues the breakdown looks like this:

• 27% banking accounts
• 23% healthcare accounts
• 10% insurance accounts
• 9% public sector accounts

The rest is from manufacturing and tech, legal, etc. 

Financials

One concern investors may have is Exela’s gross margin, which is relatively small at 23.8%.

Additionally, we’ve seen a significant dilution over the last few years. At the end of 2020, there were 49M shares, and at the end of 2021, there were 118M shares. That doesn’t speak well of their cash flows.

Speaking of which, XELA operates at a negative free cash flow which has gotten worse over the years. This is not what investors want to see in an inflationary environment. 

XELA has a current ratio of 0.56x. Its highly liquid assets are 0.56x greater than its short-term liabilities. It has a quick ratio of 0.41x, which means its highly liquid assets are 0.41X greater than its short-term liabilities. 

That’s not great for a company teetering on the edge of the cliff.

The capital structure for XELA is as follows: total debt of $1.32B and cash upwards of $29.69m. And a market cap of approximately $158.8M. You’ll be hard-pressed to find a publicly-traded company in such dire straights. 

Valuation

Of course, given how cheap the stock price is, numbers will look better than they actually are.   

For example, XELA has a price to sales ratio of 0.03X, which is significantly less than the sector median of 3.29X. 

However, XELA has seen its revenue decrease by 9.7% year-over-year. And its levered free cash flow is -283%.  

Literally, the only positive metric for the company is a price to sales ratio of 0.14x.

Our Opinion – 3/10

XELA is drowning in debt. And the firm’s revenues are declining, which makes it an awful investment at the moment. 

However, that doesn’t mean it can’t have a nice run at some point during the year. Shares are down over 60% and the short float stands at 16%.

In other words, it could take off if it has a positive catalyst. And at $0.33 a share, you know that the lowest it can go is zero. 

As an investment, we are not touching this one. But it might make for a good trade sometime during the year.