It’s been a difficult week for markets so far but one small-cap company is on a two-day winning streak. Business automation solutions provider Exela Technologies (NASDAQ:XELA) began rising yesterday following news of a contract renewal. The company issued a fairly vague statement, naming its client only as a “leading consulting firm” with whom it had a longstanding relationship. However, the news was enough to send XELA stock up by 38%. Today, it is back in the green after the company announced a share buyback program.
What’s Happening With XELA Stock
Just how many shares are being offered by Exela as part of this initiative? Up to 100 million are being offered at the buyback price of $1 per share through exchange offer of new notes. According to the statement, “shareholders can exchange 25 shares of common stock into a tradable $25 note due 2029 with 6% annual interest rate.” This offering price represents an 82% premium to the price at which XELA stock closed on Jan. 25, 55 cents apiece.
Since the news broke this morning, XELA stock is reacting well to the news. As of this writing, it is up more than 27% within the first few hours of trading. Despite a slight downtick, there’s nothing to indicate that this growth trend will reverse anytime soon. This winning streak has it in the green by more than 46% for the week. It remains in the red by 30% for the month, though.
Why It Matters
With this type of news, it’s no surprise that XELA stock’s trading volume of nearly 164 million is well above average. For shareholders, this type of opportunity can be difficult to pass up. Company Chairman Par Chadh sees this an an excellent move for Exela. As he stated, “After deploying more than $400 million of capital in 2021 to substantially reduce debt and extend maturities, we are now deploying capital to unlock shareholder value for our large and growing shareholder base.”
However, the stock has been considerably throughout the final quarters of 2021. InvestorPlace’s Muslim Farooque recently discussed the high risk and limited upside of XELA stock as a business tech play, citing its recent failure to take advantage of industry trends. He also noted the increasing competition within the business automation sector form larger firms such as Accenture (NYSE:ACN) and WNS Holdings (NYSE:WNS).
While today’s gains are impressive, it is true that they don’t tell us much about XELA stock’s long-term future. It doesn’t take much to spike trading volume, particularly when the news coincides with another positive announcement. But quick market momentum doesn’t always translate into long-term sustainable growth.
What It Means
Taking a macro look at XELA stock, it seems as though Farooque was correct in his assessment of the stock as “incredibly risky.” Share prices are quite low right now, and that may entice some buyers. The stock’s limited upside is important to note, though. While the demand for business automation services may be growing, competition is rising rapidly. And nothing about Exela indicates that it is well-positioned to compete with much larger firms with broader resources.
This type of momentum tends to fade, and that’s likely what we’re going to see from XELA stock today. Yesterday’s partnership was never going to be enough to help the company achieve anything sustainable. Exela isn’t the type of automation play that investors should be eyeing.
On the date of publication, Samuel O’Brient 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.
