At the crossroads of the software, cloud and business productivity markets stands Exela Technologies (NASDAQ:XELA), a company that specializes in tech-enhanced business-process automation. That’s a mouthful, but it’s actually not hard to discern the value proposition inherent to XELA stock.
As the company explains, Exela provides “digital transformation solutions” to more than 4,000 customers throughout 50 countries. The company’s clientele even includes over 60% of the Fortune 100.
Exela’s chief products/services include Digital Now, a suite of solutions built to accelerate businesses’ digital transformation. There’s also Exela Smart Office, a package of interconnected workplace technologies and services.
Though it’s not a perfect business opportunity, there’s a lot to like about Exela. And yes, it’s a potential short-squeeze target for the meme-stock crowd, but there’s also a growth story here that shouldn’t be ignored.
A Closer Look at XELA Stock
I’ll admit, there have been jumps in the XELA stock price which may have been attributable to Reddit and Robinhood short squeezers.
For instance, the stock leaped from $1.40 to $3.20 in January of 2021, and then from $1.73 to $4.61 in March. Another moon shot occurred in June and July, when the share price catapulted from $1.32 to $3.29.
As you can see, XELA stock has pop-and-drop proclivities. If you’re a short-term trader, you might be able to capture quick gains by purchasing shares whenever the stock drops to the $1.50 area.
Long-term investors, on the other hand, will have to think differently. Value and earnings come into play if you’re considering a buy-and-hold position.
So, let’s see where Exela stands. As of July 9, XELA stock was trading slightly below $3 per share.
At the same time, Exela’s trailing 12-month earnings per share was approximately -$4.18.
As I mentioned earlier, we’re not looking at a perfect opportunity here. It’s problematic that the absolutely value of the company’s per-share earnings is greater than the share price.
Hopefully, Exela will be able to address this issue in 2021 and the following years.
Hot Memes vs. Cold Cash
While the company has been around since 2017, Exela only became a “meme mob” target in 2021.
InvestorPlace contributor Chris MacDonald recently explained what has made XELA stock a prime target for the short-squeeze crowd.
“[T]he company’s short volume ratio of 25% and its relatively low per-share price is enticing to speculators and gamblers in this casino of a stock market,” MacDonald mused.
But again, that information may be more interesting to speculators. In contrast, cautious investors might prefer to focus on the company’s financials/fundamentals.
One aspect of this would be Exela’s capital position. And, there’s good news on this front, as the company reported having over $205 million in cash and cash equivalents as of June 30, 2021.
On top of all that, Exela had $75 million worth of additional borrowing capacity under various credit facilities (subject to terms and conditions, of course).
Bad News, Good News
Staying on the topic of financials, Exela released its first-quarter 2021 data not too long ago and the results were mixed.
I’ll start with the bad news, which really isn’t too terrible. Exela reported quarterly revenues of $300 million, marking a year-over-year decline of 18%.
In the “good news” department, Exela displayed significant margin expansion during 2021’s first quarter.
More specifically, the company recorded gross margins of 22.5%, up 370 basis points quarter-over-quarter.
Furthermore, Exela posted adjusted EBITDA of 15.5%, representing a 365-basis-point quarter-over-quarter improvement.
That’s not too bad at all. Plus, Exela still has plenty of room to grow, as the company currently represents only around 1% of its total addressable market.
The Bottom Line
Sure, it’s possible to trade XELA stock for short-term gains.
But then, that would require another meme-stock price pump, which is an unpredictable event.
Alternatively, investors can buy Exela shares in anticipation of the company’s continued growth and firming capital position.
That, I’d say, is a more sensible and sustainable strategy.
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.