Despite Its Coronavirus Catalyst, XpresSpa Stock Is Too Hyped to Touch

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When life gives you lemons, you make lemonade. That’s the best way to describe what’s happening with XpresSpa (NASDAQ:XSPA) stock lately. The novel coronavirus may have halted its existing business. But now the company has repositioned itself for the “new normal.”

XSPA stock
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Specifically, XpresSpa has turned its airport health and wellness centers into virus testing centers. And, as was the case with another pandemic play, Remark Holdings (NASDAQ:MARK), speculators rushed into XSPA stock.

The shares rallied from around 50 cents per share in April to as high as $8.82 in early June. But excitement about the company has faded, causing the shares to sink about 25% over the last month.

So should investors buy the stock on weakness? Or is XpresSpa another “too-hyped-to-touch” stock that should be avoided? It’s a little of both. On the one hand, depending on how long the pandemic lasts, XpresSpa’s testing initiative could become a nine-figure business. The stock’s potential gains may outweigh  the risk of the company stumbling in a way that will cause the shares to tumble.

On the other hand, take a look at XpresSpa’s track record. On closer inspection, it looks more like a perennial loser than a potential compounder. With that in mind, this speculative name looks like a risky bet that’s not worth taking.

Breaking Down the Bull Case on XSPA Stock

This company’s epic rally is mostly the result of speculators buying its shares based on  headlines. After XpresSpa launched a testing facility at JFK International Airport in New York, it seems obvious that a potential gold mine is just around the corner for the company.

InvestorPlace columnist Luke Lango  estimates that the company’s testing business could generate up to $550 million of  annual revenue.

Considering that XpresSpa has a market cap of just $148 million, that’s a big chunk of change. But it’s important to note that Lango’s estimate is based on a full year of operations. While the pandemic looks far from over in America, it may not be a concern a year from now.

XpresSpa’s testing business may generate some fast cash in the short-term, but it won’t last forever. If and when we “return to normal,” the company will revert back to what it was: an unprofitable operator of airport wellness centers.

Before the pandemic, XpresSpa had a weak track record, and its stock performed terribly. Investors should keep that in mind before they dive into this fast-deflating “story stock.”

Plenty of Red Flags, But Too Risky to Short

Like many speculative stocks that quickly rise and fall, XpresSpa has s a spotty track record. InvestorPlace contributor Ian Bezek broke it down in his Jun 25 article. Bezek described how the company has tried many different business models. Before putting all its eggs into the airport spa basket, it was in the patent licensing business.

But in both its past and present life, the company has seen nothing but losses, and XSPA stock sank nearly 99% in the past five years. So is this time different? Or is the company just taking advantage of today’s crisis to temporarily boost its shares?

Based on XpresSpa’s recent corporate actions, it looks more like the latter scenario. Namely, the company’s recent share offering  has made each investor’s piece of the pie  smaller now than it was before. That, in turn, could reduce investors’ gains.

But, despite these risks, it may not be wise to short this stock right now. XpresSpa appears to be a prime short candidate. But since headlines, not fundamentals, drive “story stocks,” the shares could easily rally again on just a bread crumb of positive news.

 Simply Avoid Over-hyped XSPA Stock

On paper, XpresSpa’s pivot from airport wellness centers to testing centers looks like a potential game-changer. But, as I previously noted, the initiative may partially offset pandemic-related losses, rather than move the needle.

Forget about testing  becoming a nine-figure business for XpresSpa. It’ll be a miracle if it can generate enough revenue from its testing business to minimize its cash burn. With that in mind, it’s no wonder that even the speculators are starting to head for the exits.

Don’t go long XSPA stock, as the company’s coronavirus catalyst isn’t as strong as it seems. But don’t short the shares, since speculation continues to trump fundamentals in today’s market. Avoid XpresSpa completely and pursue more solid opportunities.

Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/despite-great-story-steer-clear-xspa-stock/.

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