If you had 100 shares of Exela last week, in other words, you now have five. The split follows a successful exchange of common stock for preferred shares paying 6%, at the same 1-for-20 ratio.
It’s all part of Executive Chairman Par Chadha’s effort to make lemonade out of a company that has been delivering lemons.
XELA Stock Sinks on Reverse Split
Exela, which touts itself as “a location-agnostic global business process automation (BPA) leader,” has been shrinking and losing money for years. It lost $142 million in 2021, on revenue of $1.17 billion. In 2019 it lost $501 million on revenue of $1.56 billion.
You wouldn’t guess that from its press releases, which called it part of a Gartner “Magic Quadrant” for Finance and Accounting Business Process Outsourcing just last month. It has also reported a “capital deployment strategy,” selling a business with $200 million in revenue. It said just a few weeks ago it had a non-binding proposal on those assets but didn’t name the proposed buyer. This month it promoted a new CEO.
The problem is long-term debt, which stood at $1.15 billion at the end of last year and has been as high as $1.57 billion. The company was also hit by a ransomware attack recently. These things combined with the news of the reverse stock split all shake investor confidence in XELA stock.
What Happens Now
If you took the preferred offer, you’re lucky. You paid attention and are sitting in front of common stockholders among the creditors.
Analysts who called Exela a buy in early July, expecting a huge run-up, have egg on their faces. For investors, the lesson is that if you don’t fully understand what a company is selling, don’t buy its stock.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.