Shares of Exela Technologies (NASDAQ:XELA) are taking flight, more than doubling so far on Tuesday. As we continue through afternoon trading, XELA stock is hitting new session highs. At the time of writng, shares are up about 133%.
The move has more than doubled the firm’s market capitalization, which now stands at about $45 million at the time of writing. So what’s driving the gains?
The surge comes just a day after XELA stock plunged 38% on Monday and fell more than 18% on Friday. The decline occurred as the stock underwent a 1-for-200 reverse stock split. A reverse stock split is described by Investopedia as:
“A reverse stock split is a type of corporate action that consolidates the number of existing shares of stock into fewer (higher-priced) shares … A reverse stock split is also known as a stock consolidation, stock merge, or share rollback and is the opposite of a stock split, where a share is divided (split) into multiple parts.”
In all, XELA stock fell more than 50% in the three days leading up to today’s enormous rally.
Is That What’s Driving the Gains in XELA Stock Today?
Because Exela had such a small market cap before Tuesday’s trading session began, it would be an easy name for momentum traders to play with. That said, there’s more to the headlines than the firm’s recent reverse stock split.
On Monday, a headline hit saying that, “Exela Technologies Places in Gartner® Magic Quadrant™ for Finance and Accounting Business Process Outsourcing.”
Further, “Magic Quadrant reports are a culmination of rigorous, fact-based research in specific markets, providing a wide-angle view of the relative positions of the providers in markets where growth is high and provider differentiation is distinct.”
So despite a wave of bad price action and a reverse stock split, XELA stock could be moving on this news as well.
That all said, a company doesn’t undergo a reverse stock split when business is humming along nicely. There are a few exceptions, but this type of action is not normally encouraging for investors.
Add in the fact that shares are now just 7% above last Thursday’s closing price and today’s gains lose a little luster. Regardless of direction, most investors will and should consider XELA shares to be highly speculative at this point in time.
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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.