Xwell (XWEL) shares roughly quadrupled on Wednesday after the global health and wellness company announced a $31.3 million private placement agreement with American Ventures. The transaction includes the sale of 31,333 preferred Series H shares, convertible into 66.7 million common shares at an initial conversion price of $0.47.
Additional warrants to purchase another 66.7 million common shares accompany the offering, exercisable immediately at $0.345 per share with a three-year expiration.
Note that today's meteoric run saw XWEL stock print a new 52-week high of $1.52.
Why Xwell Stock Isn’t Worth Buying Today
While the market initially reacted with an explosive rally since the capital infusion strengthens the company’s balance sheet, the structural reality is that this deal presents a huge dilution risk for existing shareholders.
Given that warrants are exercisable at $0.345, and Xwell stock is already trading well above that, American Ventures has an immediate incentive to exercise them and sell common shares to lock in a massive profit.
This makes the dilution risk particularly significant and XWEL in general a no-go for any seasoned investor, especially considering its leveraged free cash flow of negative $15.1 million, indicating material operational challenges.
XWEL Shares Run the Risk of Delisting
Investors are cautioned against investing in Xwell also because it remains a penny stock, which typically means extreme volatility, low liquidity, and minimal transparency.
XWEL has already received a compliance notice from Nasdaq; its failure to sustain today’s gains and remain above a dollar per share for another nine days would, therefore, trigger a delisting threat again.
And that looks rather unlikely given XWEL shares relative strength index (14-day) has soared into the mid-80s, indicating extremely overbought conditions that often precede a sharp correction.
In short, unless Xwell can prove it can convert this capital infusion into sustainable operational profitability and revenue growth, there’s hardly a reason for serious investors to chase momentum in this penny stock.
Wall Street Isn’t Interested in Covering Xwell Inc
Investors should also note that Xwell stock doesn’t currently receive coverage from Wall Street firms.
That’s another major red flag as it leaves investors entirely on their to analyze XWEL and evaluate its future prospects.
This article was created with the support of automated content tools from our partners at Sigma.AI. Together, our financial data and AI solutions help us to deliver more informed market headline analysis to readers faster than ever.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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