Sometimes, it can be exciting to speculate on small businesses. Yet, the risk-to-reward proposition just isn’t favorable for Exela Technologies (NASDAQ:XELA) stock. Even though the company announced a round of funding, this doesn’t mean Exela’s shareholders should expect a comeback in 2023.
Here’s the backstory. Texas-headquartered Exela Technologies specializes in business process automation (BPA). Because this is somewhat related to artificial intelligence (AI), you might be tempted to take a share position in Exela Technologies right now.
Additionally, you may have heard that Exela recently received a sizable capital infusion. Before you jump into a hasty trade, though, be sure to learn all of the relevant facts surrounding Exela Technologies. Once you’ve seen the bigger picture, you’ll probably decide to park your money elsewhere.
Exela Technologies Gets a Lifeline, But Read the Fine Print
As Chris MacDonald reported not long ago, XELA stock rallied 30% in a single trading session. This happened because Exela Technologies disclosed $51 million of new funding, in the form of a credit line from B. Riley (NASDAQ:RILY).
Including the additional $51 million, Exela Technologies now has $185 million worth of credit (in the form of “securitization facilities”) extended to the company. Don’t assume that this is all free money for Exela Technologies, though.
As always, reading the fine print is essential. Exela Technologies stated, “The new securitization facility matures in June 2025 and bears interest at a per annum rate of one-month Term SOFR plus 7.5%.” In other words, Exela will have to pay back its debt with interest.
XELA Stock Could Still Be Delisted in 2023
Sure, XELA stock popped because Exela Technologies received an apparent lifeline through additional financing. This probably won’t be enough to save the company and the stock, however.
Bear in mind, as of Sept. 30 of last year (according to Exela’s most recently published Form 10-Q), Exela Technologies has roughly $1.1 billion worth of total debt. Hence, $185 million worth of credit is just a drop in the bucket. And, let’s not ignore the fact that Exela has failed to make interest payments on its debt.
Meanwhile, the quick rally in XELA stock only brought it up to 7 or 8 cents. This puts the stock in danger of being booted from the Nasdaq exchange, which has been known to sometimes delist stocks that trade below $1 for too long.
Exela Technologies has already received multiple noncompliance notices from the Nasdaq exchange. The Exela share price is still nowhere near the $1 cutoff level. This is yet another issue for the company’s investors to worry about.
What You Can Do Now
Maybe you envision a strong future for AI and BPA, and that’s understandable. However, sensible investors should focus on businesses that aren’t overburdened with debt.
Besides, it’s going to be difficult for Exela Technologies to regain and maintain compliance with the Nasdaq exchange’s listing rules. All in all, XELA stock might look like a worthy wager on BPA, but cautious traders shouldn’t count on a share-price comeback happening anytime soon.
On the date of publication, David Moadel 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.