With airport traffic under pressure, is it time to avoid XpresSpa (NASDAQ:XSPA) or take a closer look? After all, shares have been crushed, even from the summer highs. In June, XpresSpa stock hit a high of $8.82. Now? The stock is below $2.
While XpresSpa is trying to make adjustments — such as offering Covid-19 tests — its business model is simply impractical given the current state of the world.
For those unfamiliar with the company, it is “the world’s largest airport spa company, offering services that are tailored specifically to the busy consumer.”
Does that sounds like a good industry to be in right now? The world’s largest airport anything — fill in the blank — is not going to be a successful business during a pandemic. While the overall stock market may be treading water near its highs, the economy sure isn’t.
Millions are still unemployed and many businesses are still operating at limited capacity. As for the airlines, the travel industry remains under stress. It’s not so much that XpresSpa stock is a horrible business, but rather, it’s an already struggling business trying to survive in a very difficult environment.
XpresSpa Stock Doesn’t Get It Done
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Since the pandemic started in the U.S., Transportation Security Administration (TSA) checkpoint traffic went from several million people per day to less than 100,000 at the April lows. In mid-October, we saw that number clear one million for the first time since the pandemic started. However, it has not eclipsed that mark since.
The above illustration does a good job highlighting the trend. However, this table from the TSA gives the exact data. You will notice that over the trailing seven-day period, traffic is running at about one-third of its normal volume versus a year ago.
Put simply, the plunge in traffic is going to be a very difficult hurdle for XpresSpa to clear. That’s particularly true given the stock’s struggles leading up to 2020.
In short, the business had been having a hard time long before Covid-19 came along. Revenue in 2019 came in at $48.5 million, which is below both 2018 and 2017 results. Admittedly, operating income was better than the prior two years, but it came amid deteriorations in the balance sheet.
Cash and equivalents went from $6.4 million at year-end 2017 to $3.4 million in 2018 and just $2.2 million in 2019. Current assets shrank as well, falling 75% from $16.1 million in 2017 to just $3.9 million in 2019. Total assets were halved from $65.2 million to $28.7 million during the same period.
On the flip side, liabilities went up too. Current liabilities climbed from $12.5 million at year-end 2017 to $16.2 million in 2019. Total liabilities increased more than 50% from $19.4 million to $31.3 million.
Apologies on the numbers blitz here. However, it reiterates that revenue, cash and debt were all moving in the wrong direction before the novel coronavirus pandemic hit.
The Bottom Line on XSPA Stock
XpresSpa is going through many efforts not only to stay solvent, but also to make it to the other side of this pandemic. Its cash position has climbed from $2.2 million at the beginning of the year to $37.8 million.
That boost came on a $40 million capital raise.
A few weeks ago, in late October, XpresSpa said it would begin expanding beyond Covid-19 tests. This expansion includes tests for other communicable diseases, like mononucleosis and influenza.
Perhaps testing for Covid-19 and the flu will be enough to stem the bleeding during these tough times. But ultimately, I’m having trouble finding faith in the numbers. If the business had stronger momentum coming into 2020, I would feel better about the stock.
If XpresSpa stock wasn’t down 80% from its June high, I would feel a lot better.
Keep in mind, XpresSpa underwent a 1-for-20 reverse split in 2019 and a 1-for-3 reverse split in 2020.
I’m sorry but this stock just looks too sick to touch. If I’m going to be nibbling in the airline space, I’m going to do it with companies that have financial staying power and clear demand. It’s unclear if or when demand for spa services at an airport will rebound in a significant manner.
As a result, I’d prefer to look elsewhere in the space.
On the date of publication, neither Matt McCall 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.
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