Stocks are drifting higher on Tuesday but not Exela Technologies (NASDAQ:XELA). Instead, XELA stock is ripping higher on the day, up about 20% in the session. The move comes after the company announced a strategic partnership with Quintes Global.
Before talking about the partnership, investors are likely asking themselves, “What is Exela and what does it do?” According to the company:
“Exela is a business process automation (or BPA) leader, leveraging a global footprint and proprietary technology to provide digital transformation solutions enhancing quality, productivity, and end-user experience.”
Or put more simply, it’s a “location-agnostic global BPA leader combining industry-specific and multi-industry enterprise software and solutions with decades of experience.”
As for the partnership, Quintes Global is headquartered in New Delhi, India, and will use Exela’s Robotic Process Automation, a cloud-based solution. The goal is to “enable end-to-end digitization of processes performed by QG for its customers under the unique Dedicated Captive Model.”
Can This Help XELA Stock in 2023?
If you missed the move in XELA stock, don’t fret. We’re talking about a penny stock here, one that just made a new 52-week low at 7 cents. Shares are down more than 99% over the past 12 months and sport a 52-week high north of $19.
Lastly, we’re talking about a market capitalization of less than $10 million.
While XELA stock does sport a somewhat elevated short interest of 16.3% according to Fintel, that’s not enough for most investors to bank on any sort of long-lasting short squeeze. That’s particularly true during a bear market.
Investors are hopeful that the deal with Quintes Global will boost revenue. However, revenue is not really the problem.
While sales did badly miss the mark last quarter, the company’s bottom line is the bigger issue. What other company does more than $1 billion in sales and has a market cap below $10 million?
Over the trailing 12 months, Exela has generated $1.1 billion in revenue but gross profit of just $210 million. By the time we get to operating profit, Exela is already in the negative — not to mention its margin profile is unattractive.
So while the deal could help XELA stock, it would be even better if the company could boost its margins and protect its bottom line a bit better. That will help spark a more sustainable rally.
On the date of publication, Bret Kenwell 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.
