CORRECTION: A previous version of this story incorrectly stated the current standing of XpresSpa’s XpresCheck testing facility in Newark, New Jersey. We regret the error.
Facing a dire immediate circumstance, Luxury airport spa company XpresSpa Group (NASDAQ:XSPA) stepped back and launched a Hail-Mary pass to stay in business. That long pass hasn’t connected yet and XSPA stock investors are waiting for a completion.
The indications point to an incomplete pass, but the play isn’t over.
In the wake of recent events, XSPA stock even holds some promise as a short-term gamble for investors who like the challenge of and potential of penny stocks.
Here are the details.
The Coronavirus and XSPA Stock
XpresSpa Group was ticking along when its business model was upended by the novel coronavirus. Airport travelers weren’t treating themselves to a spa experience because people stopped traveling. The travel halt occurred quickly and with a severe punch.
It’s easy to picture the frantic emails, texts and telephone calls as company executives realized their company suddenly became irrelevant.
Their solution: Let’s convert our spas to Covid-19 testing centers. They even coined a cute name: XpresCheck.
The logic is obvious. Testing is a crucial component of containing the coronavirus. Travelers and airport workers will want and/or need to be tested. XpresSpa already has locations and staff inside several “busy” airports. Conducts the tests, charge fees and enjoy running a business that not only survives but thrives in a new version of normal.
Reality Intrudes on the Plan
Many times, a good plan is great until implementation begins. What seemed so clear and within reach becomes complicated. This is usually the case in business even when times are stable, but 2020 is anything but stable.
XpresSpa opened a pilot testing center at JFK International Airport in New York City. And it planned a quick second in Newark, New Jersey, which opened on Aug. 17 to test airline employees, contractors and workers, along with other employees. Experiences with these initial centers would guide the company to roll out more centers across the country. As for opening centers across the nation, XpresSpa’s CEO Doug Satzman says the company intends to “bring XpresCheck to additional U.S. airports over time.”
A Look at XSPA Stock
Shares of XSPA stock are taking a dip these days — quite a dip, in fact.
A month ago, shares were trading around $3.30 and then started sliding. The current price is about $1.82.
The stock’s 52-week high is $8.82, which is nose-bleed territory compared to the stock’s recent uninspiring performance.
This decline in XSPA stock appears linked to the company’s actions, including a 3-for-1 reverse split in June and a direct stock and warrant offering in August totaling some $35 million.
The market’s reaction to the dilution of stock is understandable.
A Red Flag Is Waving
In addition to the normal cautions about penny-stock investing, a new red flag is warning of possible trouble ahead.
My InvestorPlace colleague Larry Ramer worries about XpresSpa’s cash burn this year and its implications for the third quarter. He contacted the company with specific questions about its cash consumption in both the second and third quarters.
The company’s response was not reassuring.
Ramer, in a recent column, writes: “The company’s entire answer was ‘We have not provided this information.’”
The failure to provide an adequate response, Ramer says, “does not bode well for the outlook of XSPA stock.”
The Bottom Line on XpresSpa
I admire the creativity and courage behind XpresSpa’s pivot in reaction to certain doom thanks to the Covid-19 pandemic. But I am much less impressed with the company’s execution.
The turmoil in the pandemic situation and the future of air travel for a smaller company may prove to be too much for the company to navigate.
Also the cash-burn issue wisely cited by Ramer is a valid concern. Company officials should address this issue with the public and investors should be wary.
Where does this leaves XSPA stock? Investors who held their shares stock for the summer decline probably should stay the course for now. As for potential investors not spooked by the cash-burn red flag, well, the company remains an interesting play to watch.
If you have some penny-stock money you can gamble, buying on this dip is worth considering as a short-term play.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.
