Exela Technologies’ Q2 Earnings, Possible Short Squeeze in XELA Stock

Exela Technologies (XELA) stock has gained 134 percent YTD and is outperforming the markets. Traders on social media channels are talking about a short squeeze in XELA stock. Is a short squeeze coming in the stock and should you buy now before the second-quarter earnings?

Exela is a global business process automation company that has 4,000 customers spread across 50 countries. XELA has an impressive clientele and counts 60 percent of Fortune 100 companies as its clients.

The official short interest data, which is released every two weeks, put XELA’s short interest at 8.34 million shares on July 15. It was 23.4 percent of the free float and was significantly higher than the 9.76 percent in the previous reading for July 1. Ortex estimates XELA’s current short interest as a percentage of free float at just above 24 percent.

The short volumes for XELA stock look high enough to trigger a squeeze. That said, along with the high short interest, we also need a bullish narrative that can trigger a buying spree and force short sellers to cover their positions and trigger a short squeeze in the process.

Exela Technologies provided a business update in July and reported strong user numbers for Digital Mailroom (DMR) and DrySign. Commenting on the results, Exela’s president, Suresh Yannamani said “We’re excited to see the accelerating growth in our SMB (small and medium businesses) solutions and all the positive feedback we are getting across our user base.” He added, “We are adding thousands of new users each month to our customer base and creating a new Exela marketplace.”

The company has provided a few other business updates since then but it didn't trigger the kind of buying spree that the news of DMR and DrySign user numbers did. Exela Technologies is set to release its second-quarter earnings on Aug. 10. Many traders expect a short squeeze after the earnings.

Analysts expect XELA to post revenues of $334.4 million in the second quarter, which would mean a YoY rise of 8.7 percent. However, the company is expected to post a net loss in the quarter, which it has been doing for many quarters.

On its Twitter handle, XELA has referred to valuations of companies that are in a similar business. XELA trades at a steep discount to its peers. Despite posting revenues of $1 billion in fiscal 2021, its market cap is less than $200 million, which would mean a price-to-sales multiple of around 0.2x.

However, the valuation multiples are low for multiple reasons. First, XELA’s growth has been sagging. Second, it's a loss-making company, which could be making investors apprehensive. Also, Exela Technologies has high financial leverage. The company has been trying to address the issues and has been issuing new shares to shore up the balance sheet.

A positive second-quarter business update could help trigger a short squeeze in XELA stock. The stock’s high interest combined with a positive business update would set the stage for a short squeeze. XELA looks like a penny stock worth betting on.