XpresSpa Stock Is More Trouble Than It’s Worth

As we head into the new year, has much changed for XpresSpa (NASDAQ:XSPA)? To be honest, not really. Sure, the encouraging vaccine news does bode well for the still struggling air travel industry. We could be well on our way back to the “old normal” in 2021. Yet even if we “return to normal” within the next year, don’t count on XSPA stock being an air-travel recovery play.

XSPA stock
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Sure, given it’s the largest airport spa company, bringing air travel numbers back to pre-pandemic levels is a positive, not a negative, for XpresSpa. But, here’s the thing: even before Covid-19, this company was in trouble.

Take a look at its financials in the years before the pandemic. Even when the commercial airline industry was profitable, XpresSpa was losing money. Given a full rebound in air travel will take some time, it’s hard to see the situation getting better anytime soon.

Add in its recent dilutive capital raises and the potential gains with this stock, as air travel recovers, may be even more limited than it appears at first glance. Sure, with its pivot to Covid-19 testing, the company has lived up to the old adage, “when life gives you lemons, make lemonade.” But, even this adaptation to the “new normal” isn’t enough to make this a worthwhile recovery play.

New Developments Won’t Change the Game for XSPA Stock

The rapid rollout of a Covid-19 vaccine means the air travel industry is one step closer to recovery mode. But, it’s still a long road ahead. Based on recent TSA checkpoint travel numbers, “traveler throughput” remains at around 30% to 40% of pre-pandemic levels.

Sure, as more people are able to get the vaccine and things start to further open up, expect these numbers to trend higher. However, that’s not to say it’s going to be like flipping on a light switch. Getting back to the high water mark will take some time.

And, in the meantime, that means continued losses for XpresSpa. Even as the company has converted its airport locations into testing centers. And not just for Covid-19. The company now offers testing for other major communicable diseases, like influenza. A few months back, investors may have seen this as a potential goldmine for this hard-hit air travel services company.

But, based on results for the quarter ending Sept. 30, so far testing services have done little to move the needle. Revenues for the quarter were $201,000. That’s a more than 98% decline compared to the prior year’s quarter. Yes, with all but two of its spas closed, it’s understandable why revenues are essentially zero.

However, in the third quarter, the company opened several testing centers at major airports in the New York, Boston and Phoenix metro areas. Sure, the ramp-up of the testing business is still in progress. But, I really don’t see this boosting sales all that much in the current quarter. Much less, replacing the revenue losses from its still-mothballed spa business.

A Perennial Destroyer of Shareholder Value

To keep the lights on during this crisis, XpresSpa has raised $74.1 million via direct equity offerings — in other words, sales of common stock. While this has helped to soften the blow from continued cash burn, this dilution is another key reason why this is far from being a great air-travel recovery play.

Splitting the pie into many more slices, this heavy dilution minimizes the potential gains from this stock, if and when its testing business takes off. And, when its spa business recovers. But given the horrendous performance of this stock in the past five years, it’s doubtful investors can depend on any sort of rebound in XSPA stock.

How bad has this stock performed? Adjusted for stock splits, shares traded for prices topping $175 per share in late 2015. Compare that to recent prices, around $1.50 per share. That’s a more than 99% decline in the past five years!

Sure, past performance is not indicative of future results. Yet it’s hard to see this perennial destroyer of shareholder value suddenly become a big-time winner for investors.

With Better Plays Out There, Stay Away from XpresSpa

As I discussed previously, there are better rebound plays out there in this this space. A rebound in air traffic will get major carriers out of the red. But, a bounce back in airport foot traffic may not translate into profits for XpresSpa.

Given the company’s heavy losses during the airline industry’s salad days, a reversal of its current fortunes doesn’t look likely. And, even with its pivot to not just Covid-19 testing, but testing of other communicable diseases, it’s not enough to turn this perennial destroyer of shareholder value into a winning long-term opportunity.

Bottom line: My opinion of XSPA stock hasn’t changed. And neither should yours. More trouble than its worth, look elsewhere for opportunity.

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.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now 

 


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