Life has changed dramatically with the onset of the novel coronavirus, and your trading strategy must change as well. XpresSpa Group (NASDAQ:XSPA) wasn’t particularly compelling when the company was focused on luxury spa treatments in airports. Nowadays, however, XSPA stock is much more interesting as the company’s business model has shifted.
Not that there’s anything inherently wrong with luxury spa treatments at airports. Yet, travelers are generally more concerned about their health and safety nowadays than luxuries. As a result, XpresSpa made a smart decision in moving towards screening and testing services at airports.
On the other hand, momentum-focused traders won’t necessarily appreciate XpresSpa’s savvy business shift. They might complain that the price of XSPA stock has gone down and they don’t want to get involved with it.
Before dismissing the stock as a falling star, it’s important to consider why the price is down. If there’s nothing fundamentally wrong with the company itself, then XSPA’s lower price could be a blessing in disguise.
XSPA Stock at a Glance
Before we examine the price action of XSPA stock, it’s important to note that XpresSpa’s enacted a one-for-three reverse split not long ago. Therefore, all historical price considerations must take that event into account.
After the reverse split in June, XSPA started out in the $4 to $5 range. Unfortunately for anyone holding the shares, XSPA soon fell out of that range in the first half of July.
The bulls attempted to stage a recovery, and they succeeded in getting XSPA stock back up to $4.50. That rally was short-lived, however, as the stock fell back out of the range in August and broke below $2 in early September.
It’s probably not a coincidence that the decline in XSPA stock happened during the same month as a noteworthy event for XpresSpa. Our role as informed investors is to determine whether this event should really be considered a deal breaker, and to act in accordance with our findings.
The Big Event
Since there wasn’t much else going on that would cause a continued decline in XSPA, we can easily pinpoint one likely culprit. Namely, XpresSpa announced a $35.3 million direct offering.
According to the terms of the direct offering, investors could purchase “one share of common stock (or common stock equivalent) and a warrant to purchase one share of common stock” for $3.15.
This offer wasn’t for everyone, though. Specifically, the terms specify that the offering was targeted towards “several healthcare-focused and other institutional investors to purchase 11,216,932 of its shares of common stock (or common stock equivalents in lieu thereof) and short-term warrants to purchase up to an aggregate of 11,216,932 shares of common stock.”
Addressing the Concern
The skeptics’ primary concern here would likely be that there would now be more outstanding shares of XSPA stock. This could have a dilutive effect on the share price however, the market appears to have priced this concern into the stock already.
Now, prospective investors in XSPA stock should look towards the future. Prior to “placement agent fees and other offering expenses,” the direct offering is projected to generate around $35.3 million for XpresSpa.
Among other uses, XpresSpa is expected to use some of the proceeds from the direct offering to fund future locations. This falls in line with the company’s ambitions.
CEO Doug Satzman stated that XpresSpa hopes to “bring XpresCheck to additional U.S. airports over time.” The company already provides Covid-19 testing and screening services at JFK International Airport. Plus, XpresSpa has an agreement to provide its services at Newark Liberty International Airport.
Sure, XSPA stock is trading at a lower price now and we can’t ignore that fact. Whether that’s a good or bad thing depends on how you view the company’s future.
Clearly, XpresSpa plans to effectively utilize the funds from the direct offering. If more locations are in the offing, then XSPA investors should see a turnaround in the share price.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.