XpresSpa Group (NASDAQ:XSPA) has not had a very good run. Well, at least over the long term. XSPA stock is actually up over 81% so far in 2020 and has surged more than 2,000% from the March low.
This stock was left for absolute dead, trading down to 15 cents per share a few months ago. Now trading for around $4.50, there’s plenty of life in this name as of late.
That said, let’s toss some cold water on these numbers and bring reality back to the center of attention. It had stellar performance this year, with shares up 39% over the past 12 months. However, over the last two years, shares are down almost 75%. Over the last three years, that loss swells to 93% and to 98.8% over the last five years.
With all of that in mind, let’s dig a little deeper on XSPA stock.
Breaking Down XpresSpa’s Numbers
For those unfamiliar with XpresSpa, it “offers travelers spa services, including massage, nail and skin care, as well as spa and travel products.” Though of late, it has also turned its attention toward the Covid-19 testing market.
With plunging airline traffic, one can see why this stock was in free-fall too. However, like Whiting Petroleum (NYSE:WLL) and many others, its problems were present before the novel coronavirus, not a result of it. Covid-19 only made matters worse. Remember, the share price collapsed long before the coronavirus came about.
While the stock has recovered well since, XSPA has its work cut out for it — just to survive. A glance at the balance sheet reveals a red flag. While total assets of $29.1 million are not significantly lower than the $32.9 million held in total liabilities, the current ratio is an issue.
There are real concerns here about XpresSpa’s ability to meet its short-term obligations. Making matters worse — and as one would expect — revenue and cash flows are plunging.
Free cash flow has been an issue here for a while. While XpresSpa has endured a free cash outflow over the past few years, it was improving. From 2017, cash outflow went from -$16.9 million to -$9.6 million to -$2.4 million in fiscal 2019.
In Q1 2020 though, free cash flow plunged to -$4.1 million. Keep in mind, airline traffic was solid for the first two months of the quarter. It only plunged once Covid-19 leveled traveling trends around the world.
Trading XSPA Stock
The company has partnered with HyperPointe for Covid-19 screening at airports. With traffic on the mend, it’s possible that XpresSpa saw its business bottom in the second quarter. That appears to be the case with the airlines, although financially, most are on better footing that this company.
Really, that is the main issue. While the company took efforts to improve its liquidity, there’s a huge question of whether it will be enough.
Not to mention the simple Peter Lynch way of investing through common sense observations. In other words, even with XpresSpa open, how many people will be lining up to get airport treatments with Covid-19 still booming in the U.S.? Will the addition of testing be enough?
The charts don’t seem to mind. After a prolonged pullback from the June high — much like the airline stocks — XSPA stock broke through downtrend resistance (blue line) and is now clearing the 23.6% retracement and the 50-day moving average.
Above puts the 38.2% retracement in play, followed by the $5 level. Above that opens the way to more upside. On the downside, I would consider a close below $2.19 a very bearish development. It would land XSPA stock below the 200-day moving average and the May, June and July lows. It would certainly put a gap-fill down toward $1.50 in the realm of possibilities.
The charts here could be much worse, given the fundamentals. Either way, it’s not a name for me to invest in, given its shaky footing and volatility.