Sometimes looks can be deceiving in financial markets. XpresSpa (NASDAQ:XSPA) is a good example of that. In 2020, XpresSpa stock has fallen 3.7%. In this environment, that’s something most investors can live with when it comes to a small-cap, consumer-discretionary name.
Upon further examination, XSPA stock looks significantly less appealing. As is the case with so many smaller consumer cyclical names this year, XpresSpa is all over the place, due to the novel-coronavirus pandemic. Prior to Covid-19 becoming part of everyday life here in the U.S., XpresSpa flirted with $3.50-ish in February. At its March low point, it was literally a penny stock, tumbling to 15 cents.
Confirming its status as a reopening play, XpresSpa stock would race to almost $9 in June. However, being a reopening idea cuts both ways as XSPA stock proves, as it’s now below $2.
To be fair, some of that decline was caused by XpresSpa taking advantage of its then-rising share price to raise cash via a $40 million secondary offering that diluted investors. That was a necessary move because, at the end of the first quarter, the company had just $3.8 million of cash on its balance sheet.
XpresSpa Stock Is Still Risky
Prior to the pandemic, XpresSpa’s core business was operating spas and health and wellness facilities across 51 locations in 25 airports around the world.
Essentially all of its assets were connected to business and leisure travel, and of course the travel sector has been badly hit this year by the pandemic. Looked at another way, with air travel nowhere near pre-coronavirus levels, it stands to reason that businesses located inside airports, such as XpresSpa’s facilities, are struggling.
Unfortunately, as airline equities show, the pandemic isn’t abating in the U.S. Actually data confirm that it’s probably getting worse. The lowest daily case count in September was on Sept. 7, when there were 25,166 cases. On Nov. 2, there were 93,600 new cases.
That’s trending in the wrong direction. Further, that trajectory gives skittish travelers reason to stay at home or travel by automobile even though studies indicate that air travel is safe if carriers force their passengers to wear masks.
The point is that XpresSpa operates a business that’s largely dependent on folks entering airports. With analysts forecasting that airlines will only return to 2019 capacity levels in 2022 or 2023, it could be some time before airport-based spas attract a meaningful number of customers again.
The Leopard Is Trying to Change Its Spots
To its credit, XpresSpa is attempting to respond to the adverse effects the pandemic is having on air travel and airport traffic.
The company is opening coronavirus testing centers at major airports, primarily on the East Coast. It has opened such centers in JFK International in New York and Newark Liberty International in northern New Jersey. Last month, XpresSpa announced that it was building a testing facility at Boston’s Logan International airport. Impressively, the company was able to open that site in less than three weeks.
Increasing the relevance of XpresSpa’s new facilities, those airport testing sites will also feature rapid testing for other ailments, such as flu, mononucleosis and group A streptococcus.
“This pandemic is prompting people to change the way they think about their health when traveling, paving the way for this new industry segment in a post COVID-19 world,” said CEO Doug Satzman.
At the end of the day, XpresSpa’s metamorphosis from manicure and massage provider to healthcare testing operator is admirable, but hurdles remain. For example, its JFK site can administer just 500 tests per day. At Newark, it can only conduct 350 tests each day.
Plus, the tests will cost travelers $200 each because they are not covered by insurance. Given all of these factors, XpresSpa could face challenges, including competition, cheaper tests, and, hopefully, a vaccine that will come to market sooner than later.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
