It’s been a complicated year for Exela Technologies (NASDAQ:XELA) and not for the right reasons. It shouldn’t be a bad time for a company in the process automation space, but XELA stock has plunged more than 90% over the past six months and is on the verge of falling 100% for the year.
The company hasn’t been able to garner any significant momentum, even after reporting a new source of funding. Today, Exela made things worse when it filed a preliminary proxy statement ahead of the May 4 shareholder meeting. In it, the company laid out multiple proposals, including a reverse stock split. The stock’s performance indicates that the market is not responding well to this news.
What should investors be preparing for as the shareholder meeting approaches? Let’s take a closer look at the changes upon which Exela is seeking approval.
What’s Happening With XELA Stock?
For the past week, Exela has been on a losing streak. Today’s news has only made it worse. As of this writing, XELA stock is down more than 12% for the day and looks primed to fall even further. Today’s declines have erased all progress the stock made after the company announced it had received funding from B. Riley (NASDAQ:RILY), and they aren’t over yet.
Exela investors should be marking their calendars for May 4, the date of the shareholder meeting. As the company specified in the preliminary proxy statement, it plans on seeking shareholder approval for multiple proposals, including a 1-to-100 or 1-to-200 reverse stock split. While the deal hasn’t been voted on yet, news that the company is opting to go that route is definitely enough to push shares down. Experts have made it clear that when a company pursues a reverse stock split, investors should typically worry.
This proposal is directly in line with a prediction made by InvestorPlace’s Louis Navellier. Earlier in the month, the market expert laid out a bearish case for XELA stock, making it clear he thinks the company is in a race to the bottom. As he stated:
“One can only wonder what ‘solutions’ Exela Technologies’ management will propose at the hearing. Don’t be shocked if a reverse stock split is enacted at some point. This could provide a quick fix, but wouldn’t address Exela’s fundamental problems.”
It seems that Exela is following Navellier’s logic and seeking to provide a quick catalyst to boost shares. However, as he stated, even if the reverse split is approved, it’s unlikely to spur any long-term growth, as it wouldn’t help with the deeper problems that have pushed XELA stock down so far.
What Comes Next
The reverse stock split is contingent on shareholder approval, but it will likely pass. But investors should be careful to see the bigger picture here. Companies opt for stock splits when times are good and reverse splits when times are bad. That’s exactly what’s happening now, even when quick catalysts give the stock a temporary boost. Shareholders will likely cash out following the reverse stock split, sending shares down even more.
A few weeks ago, Navellier warned investors to “expect a total wipeout with XELA Stock.” That prediction seems to be coming true as the company’s race to the bottom speeds up. Wall Street knows that strong companies don’t opt for reverse stock splits.
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.
