XpresSpa Stock: Don’t Expect A Relaxing Summer

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XpresSpa (NASDAQ:XSPA) stock has been one of the biggest winners as a result of the novel coronavirus. The company, which focuses on airport health and wellness centers, had been floundering in obscurity.

XPSA Stock: Don't Expect A Relaxing Summer With XpresSpa
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For several years, it had opened airport locations to little fanfare and nothing much in the way of profits. Now, however, with the virus wreaking havoc on the global travel industry, XpresSpa has managed to reposition itself as a virus security play.

As a result, XpresSpa stock has surged more than 1,000% from its recent March lows. However, traders have gotten ahead of themselves on this momentum name. A more careful look at the company’s back story and current outlook should give folks pause before they invest in it.

Not A Great Corporate History

XpresSpa is not a new company. In fact, if you look back at XSPA stock’s record, you’ll see quite a few changes along the way. The company, back in 2016 and prior, was called Vringo and focused on intellectual property licensing.

It had more than 600 tech patents, and used these to generate settlements from companies that infringed on its technologies. This generated some revenues, but not enough to sustain the business. Vringo shares, then listed as VRNG, collapsed, and the company was forced into doing a reverse stock split to keep its listing in the Nasdaq composite.

In 2016, it also changed its name to Form Holdings, and unveiled a new ticker symbol: FH. It intended to become an operating company using its patent portfolio to create its own products. This, however, didn’t do much for shareholder returns.

In 2018, it tried another name change, this time settling on XpresSpa and the current XSPA stock ticker symbol. Since switching from FH to XSPA, shares are down another 90% or so, and a holder of original Vringo stock has lost approximately 99% of their investment since 2015.

The Latest Developments

In 2018, the company focused its operations on its spa business. Since then, it has now reached a point where it has more than 50 airport spas. These generate about $1 million per unit in annual revenues. Revenues come primarily from massages, nail care and skin care. There is also a travel retail component as well.

In March, with its primary spa business out of commission, the company cleverly thought of using its spa centers for coronavirus testing. It has signed several agreements with local airport authorities to make this happen. Most notably, it scored a deal with New York’s JFK airport to set up testing there.

XPSA stock has soared as people hope that this Covid-19 testing business becomes a major profit center.

Don’t Forget the Spa Business

At the end of the day, ExpresSpa is still a health and wellness company that, according to its annual report, relies on a steady stream of travelers with downtime that want to relax. When there are fewer passengers, the company will generate less revenue.

The company shut its spa services in March due to the virus and warned that: “If the COVID-19 outbreak continues and persists for an extended period of time, we expect there will be significant and material disruptions to our operations, which will have a material adverse effect on our business, financial condition and results of operations.”

While the coronavirus testing operations could generate some revenue in the interim, it’s probably not going to be a durable long-term highly profitable revenue stream. If the virus remains prevalent, air travel will probably be depressed for an extended period, which would crush the rest of the company’s operations.

To that point, it’s worth noting that the stock performance of OneSpaWorld (NASDAQ:OSW). OneSpaWorld provides spa services on cruise ships, thus making it a peer to ExpresSpa’s airport spas. OneSpaWorld’s stock is down from $15 pre-virus to just $5 now.

XSPA Stock Verdict

I get the obvious appeal of trading ExpresSpa as a coronavirus play. However, traders may be missing the broader point here. The company was designed to help a large number of travelers with health and wellness services. This virus testing side business is a distraction from the main event.

The longer the virus sticks around, the more people will be put off from traveling in general.

On top of that, there are other reasons you should be cautious about investing in the stock. For one, the company has a winding history that has caused dramatic losses for long-term shareholders. The new business pivot to virus testing could work. However, they would have far more credibility if any of their previous lines of business had turned out better.

Also, the company will likely need to raise more money and has a weak balance sheet. In fact, in its most recent annual 10-K filing, the company warned that: “Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.”

In a normal market, people would read that to mean that there is considerable risk of the business failing outright. Right now, however, traders are more willing to speculate in companies with flimsy balance sheets, so ExpresSpa has time to try to strengthen its outlook.

Still, you should be careful. If the Covid-testing business doesn’t take off, shares will likely get crushed in coming months.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/xpresspa-xspa-stock-dont-expect-a-relaxing-summer/.

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