EXLS Heads Into Earnings With Bears in Retreat

ExlService Holdings reports today against a notably different backdrop than its last two prints — short sellers have been covering, the stock has ripped higher, and options traders are sitting on a structurally elevated put/call ratio that has just started to ease off its recent peak.

Short interest has fallen roughly 15% over the past month, dropping to 7.8% of the free float. That unwind accelerated through July: from a peak above 14.5 million shares in mid-June, positions have shed nearly 2 million shares heading into the release. The borrow market reflects no urgency on the short side — availability is extraordinarily loose at over 2,200% of outstanding short interest, with borrowing costs running below 0.4%. There is no squeeze pressure here. The covering looks orderly, not forced.

The options picture is more nuanced. Put/call ratios are elevated in absolute terms, running near 3.3 against a 20-day average of 3.2 — but that level is unremarkable relative to EXLS's own recent history, and the z-score barely registers above zero. More striking is the context: just four weeks ago, the PCR was below 0.2. The structural shift from a heavily call-skewed book in late June to a put-heavy one in July coincides almost exactly with the stock's recovery rally — now up 17% on the month and 12% on the week to close at $30.53. The stock's peers moved up too, with Gartner adding 5% on the week and SS&C Technologies gaining 8%, so the lift in EXLS is partly sector tailwind rather than purely company-specific rerating.

The analyst debate is essentially a valuation standoff. The Street is broadly constructive — TD Cowen, JP Morgan, and Barrington Research all carry positive ratings — but targets have drifted lower over the past year as the stock struggled. TD Cowen trimmed its target to $39 on July 9, maintaining Buy, while the consensus sits at roughly $40. Against a current price near $30.53, that implies meaningful upside on paper. Bulls point to expected double-digit revenue and EPS growth, a strong foothold in regulated industries, and what they describe as a low P/E multiple after a prolonged drawdown. Bears counter that margins are forecast to stay flat, exposure to Indian labor-cost changes is a real structural headwind, and client concentration leaves the revenue base vulnerable. The two most recent post-earnings reactions add context without providing comfort: the June print triggered a 1.9% one-day decline that extended to a 7.9% drop over five sessions, while the May release fell 9.4% on the day before partially recovering.

Today's print is less a test of whether EXL can grow and more a test of whether it can convince the market that the margin story is not deteriorating — and whether the covering by short sellers over the past six weeks was, in hindsight, well-timed.