Travelers today are seeing lots of changes in airports across the U.S. as a result of the novel coronavirus pandemic. In a surprising twist, these fundamental changes to travel are benefiting XpresSpa (NASDAQ:XSPA) stock in a big way.
Frequent flyers have probably heard of XpresSpa before. In normal times, the company operates small retail spa locations in America’s busiest airports, on the idea that busy, stressed flyers sometimes opt for a relaxing massage or facial while they are waiting for their flight.
But those spas were emptied out in March as Covid-19 brought air traffic to a near stop. XSPA stock dropped from $3.50 in late February to 40 cents by late March.
Then XpresSpa announced that they would be retrofitting all of its free-standing spa locations into Covid-19 testing centers – and XSPA has taken off like a rocket ship ever since. From a low of 40 cents in late March, to a price tag today near $5.
It’s easy for investors to write off this meteoric rally in XSPA stock as nothing more than a bubble – a fear-of-missing-out (FOMO) rally driven by Covid-19 hype and hysteria.
But it’s not. This could actually be just the beginning of a much bigger, more sustainable rally in XSPA stock.
From Facials to Nasal Swabs
XpresSpa’s spa business was decent, but mostly nothing special.
The company operates 51 spa locations across 25 different airports, most of them domestic. Revenues in 2019 measured $50 million, or about $1 million per location. Those revenues have been flat since 2017. Store profit margins are around 20%. And the company has run net losses for as long as anyone can remember.
But what is “special” about XpresSpa is that the company is sitting on ultra-valuable real estate in all of America’s busiest airports.
It has four locations at Hartsfield-Jackson Atlanta International, two locations at Los Angeles International, and six locations at John. F Kennedy International in New York. Between its 32 domestic locations across America’s biggest airports, XpresSpa has exposure to 80% of all U.S. air travel.
Other “special” things about XpresSpa include:
- All of its locations are free-standing and can easily be converted into whatever they need to be converted into.
- It has 60% market share when it comes to in-airport spa retail locations.
- Its employees are already TSA-security approved, so they can be trained and deployed quickly across all of America’s airports.
- Its already hired doctors to run the testing unit, dubbed XpresCheck.
All of these things position XpresSpa to quickly and successfully turn into a large, nationwide, in-airport Covid-19 testing company.
They’ll be the first to make moves in this market, with their first testing center set to launch within the next two weeks at JFK. First-mover’s advantage will help the company establish itself as the standard for in-airport testing. The company’s ability to quickly scale that standard across all of America’s busiest airports will help XpresSpa solidify that first mover’s advantage into a sustainable moat through brand recognition and testing method standardization.
It’s a positive growth flywheel. And it means that XpresSpa is more than just a speculative play. It’s a company with visible runway to being very successful in the Covid-19 testing space.
Huge Upside Potential
If XpresSpa successfully executes against its Covid-19, in-airport testing opportunity, XSPA stock could fly higher from here.
Let’s say the company does retrofit around 30 of its U.S. free-standing spa locations to be Covid-19 testing centers. Let’s also say each one of those test centers performs about 500 tests per day, amounting to just 15,000 tests, or about 3% of today’s depressed total daily air travel volume.
At $100 a test, that would equate to $1.5 million in revenue per day. Annualized, that’s nearly $550 million in revenue. A market-average sales multiple of 2 on that implies a potential $1.1 billion market cap for XpresSpa in the near future.
The company has a $170 million market cap today.
In other words, XSPA stock has a visible opportunity to multi-bagger returns if management can successfully execute against its opportunity in the in-airport, Covid-19 testing space.
Bottom Line on XPSA Stock
It’s easy to write off XSPA stock as a bubble.
I don’t think it is. The in-airport, Covid-19 testing market has huge potential. There is no incumbent solution to service that market. And XpresSpa has a visible opportunity to become a big player in that market, with a national presence and a huge revenue base.
If management successfully against that opportunity, then XSPA stock is a potential multi-bagger over the next few months.
As such, I wouldn’t write off XSPA stock a bubble just yet. There’s more to this meteoric rally than FOMO and Covid-19 hype.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.