Trading on the Irony of Exela Technologies Could Be Risky

While I’m not entirely sure if Exela Technologies (NASDAQ:XELA) would qualify as a meme trade, what’s not ambiguous is that XELA stock generates significant buzz on various social media platforms.

Page of newspaper with words penny stocks.
Source: Vitalii Vodolazskyi /

On one hand, a low-priced equity unit like this could deliver massive profits based on coordinated trading action. But on the other hand, it’s a treacherous way to make a buck.

Fundamentally, though, Exela does offer significant relevance, assuming that the business achieves its paper goals. Billed as a global leader in business process automation (BPA), Exela enjoys an expansive client base of over 4,000 customers in more than 50 countries.

Further, data from ResearchAndMarkets notes that industry experts anticipate a double-digit compound annual growth rate between 2020 to 2026 in the global BPA market, ultimately culminating in the sector commanding a valuation of $19.4 billion by the end of the forecasted period.

If Exela can continue grabbing market share, that would be huge for XELA stock.

At the same time, the longstanding criticism about the underlying company is that attempting to snag the aforementioned market share came at a severe cost. Last month, our own Mark Hake warned that Exela revealed in its first-quarter 2021 earnings report that the firm “was burdened by operating losses and $152.7 million in long-term debt and high levels of interest expense.”

But even with the disclosure in Q2 that Exela “closed an equity financing round and started a new $150 million capital raise program,” Hake still suggested that investors may want to consider selling XELA stock. In his view, management needs to be even more draconian with its debt reduction efforts. But lacking a cohesive business plan, Exela wasn’t for your typical buy-and-hold type.

Of course, that hasn’t stopped ardent XELA bulls. But should they reconsider their firm approach?

Inefficiency Has Become the Catalyst for XELA Stock

If you take a look at Exela’s website, it gives an explanation about how it utilizes its BPA solutions to help its client enterprises. “We connect clashing systems, upgrade inefficient processes, and provide the customized insights you need to elevate your organization.”

Upgrading inefficient processes? That’s truly ironic because inefficiency is likely the only reason why XELA stock has been minting millionaires within the bold, risk-tolerant trading community.

Once you’re done browsing Exelatech, you should head on over to Stocktwits and do a search for XELA stock. Because comments come in by the second, I can’t guarantee you’ll see what I see. But chances are, you’ll find plenty of posts urging bearish traders to perform anatomically impossible acts to themselves, along with some crude language.

The motif that connects the vitriol is that bears are bad people (I really can’t go beyond that description). And why are they bad? Because they profit from publicly traded companies that fail.

But that in itself is an irony because in order to find companies that are great value, you need a ton of people not to believe in a particular opportunity (or in the case of shorts, to take bets against it). Conversely, if everybody was a “good guy” and believed in the target company, then it wouldn’t be a great deal.

Thus, short traders are like great white sharks: they eat the sick and the weak and thereby create a healthy ecology.

But by ramping up sickly firms (which arguably describes Exela) contrarian opportunists go against the natural order of market ecology. Invariably, by freaking out the bears, XELA stock can occasionally skyrocket. But so far this year, it has been unable to sustain such upward spikes.

Put another way, it’s inefficient to have troubled firms jump higher merely on speculation, which is why the market has been quick to correct XELA stock.

Study Short Trading and Make Your Decision

Of course, whether you want to gamble on Exela is entirely up to you. Personally, it’s not my type of opportunity. But before you make your decision, you should really analyze what short trading is all about.

Just like the movie Jaws does a disservice to the greater role that great white sharks play, social media does a disservice to the role that short traders play. Certainly, some shorts are jerks. But hey, there are plenty of bulls that are jerks too. That’s not really the point of short trading.

Once you can look at the practice with an objective perspective, you may be able to come away with a greater appreciation for what’s going on with XELA stock. Or you can continue coming up with creative insults. It’s all up to you.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that’s writers disclose this fact and warn readers of the risks.

On the date of publication, Josh Enomoto 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 Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC