Identity Crisis Is Hurting XSPA Stock

The muddled approach of XpresSpa (NASDAQ:XSPA) makes the stock too volatile to justify taking a position at this time. 

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Running spas at airports across the U.S. is a bit of a questionable business model even in good times. But with flights grounded amid the Covid-19 pandemic and traffic through American airports down 73% from last year, the spa business is kaput.

A contingency plan to turn those dormant spas into Covid-19 testing centers called “XpresCheck” is, at best, a short-term solution. At worst, an ineffective response to the pandemic that has decimated air travel worldwide.  What exactly the future holds for XpresSpa is a giant question mark, which is reflected in the company’s stock price that currently sits at just over $2 a share, placing it firmly in penny stock territory.

Bad Before Covid-19

The reality is that things weren’t great for XpresSpa before Covid-19. The company was operating at a loss before the pandemic, had never been profitable, and XSPA stock started the year trading hands at $1.88 a share. While the stock caught fire in June and jumped 186% in a matter of days to $7.11 a share, that rally proved to be short lived and the share price has since come back down to earth.

Much of that June jump came from day traders on sites such as Robinhood, bidding up the stock after it was announced that XpressSpa planned to convert its airport spas into Covid-19 test centers. However, the people who bought the stock and bid up the price were just as quick to dump it a few days later.

Even the plan to operate Covid-19 testing centers in airports is questionable. First of all, the conversion of 46 spa centers located at 23 U.S. airports appears to be going slowly. To date, the company has only managed to secure agreements to convert two of its spas to testing centers – one at the airport in Newark, New Jersey and the other at John F. Kennedy Airport in New York City.

How many more spas will XpresSpa manage to convert before a Covid-19 vaccine (expected late this year or in early 2021), renders the testing centers obsolete?

Also, the amount of people XpresSpa says it can test for the virus is ineffectual. The company claims it can test a maximum of 500 people a day. However, the Transportation Security Administration (TSA) screens between 500,000 and 800,000 airline travellers each day — making 500 a drop in the bucket.

Other Communicable Diseases

As if the plan to covert its airport spa locations to Covid-19 test centers didn’t seem half-baked enough, XpresSpa’s Chief Executive Officer, Doug Satzman, recently doubled down on the proposition by announcing that the company plans to expand its airport testing beyond Covid-19, to the testing of other communicable disease such as influenza (the flu).

“In the near-term, we are looking to expand testing to other communicable diseases as well as administer vaccinations for the seasonal flu.We also see ourselves as well positioned to be part of the national roll out of a Covid-19 vaccination when it becomes available,” Saltzman said in an interview with Forbes magazine. To date, there is no evidence that this type of expansive testing or mass vaccination is something that is wanted or will be backed by U.S. federal or state governments.

In the meantime, financial losses continue to mount for XpresSpa. Spa closures since March resulted in the company going from revenues of $12.9 million in the second quarter of 2019, to just $143,000 in revenue this year between April and June.

Expenses rose to $3.4 million from $2.5 million in the second quarter from a year earlier due to the start-up costs associated with the XpresCheck Covid-19 test centers.

XpresSpa Group’s losses from operations swelled to $9.7 million in the second quarter from $1.9 million during the same period of 2019. The company’s net loss ballooned to $58.5 million from a loss of $6.1 million in the prior year’s second quarter. To say XpresSpa’s financial situation is precarious would be an understatement.

Avoid XSPA Stock

The Robinhood crowd have had their day(s) with XSPA stock and moved on. Investors looking to buy shares now in hopes that they will again double or triple in value are deluding themselves. XpresSpa’s plan to switch from running unprofitable airport spas, to testing and vaccination centers for Covid-19 and the flu are beyond speculative.

Ask yourself when the last time was that you got vaccinated at an airport? Furthermore, by the time XpresSpa gets its testing centers fully up and running, the pandemic is likely to be over and then what?

How much money will the company need to spend to convert its airport spaces back to spas for massages and manicures?

The whole situation has done nothing but cause an identity crisis for XpresSpa, and that fact is reflected in XSPA stock, which is again trading around $2 per share.

Given that XpresSpa trades as a penny stock, there isn’t enough analyst coverage for there to be a rating or price target on the security. But it’s safe to say that the current financial fortunes and outlook for XpresSpa make the stock too big a risk to invest in at the present time. The smart money is to steer clear of XpresSpa’s stock until such time as the Covid-19 pandemic is behind us or the company proves that it can make a success out of airport disease testing and vaccination centers.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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