The novel coronavirus has done more than just rub bearish XpresSpa (NASDAQ:XSPA) traders the wrong way. But if all goes according to plan, XSPA stock is in position to deliver soothing longer-term returns. Let me explain.
It’s not uncommon for companies to change their focus over time as markets and opportunities shift and develop. The best can and have done it. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) are two examples of companies smartly pivoting into lucrative openings.
Business initiatives of course, often take time to develop and grow. But on rare occasions when the right catalyst reveals itself, a disruptive and positive change in a company’s business can literally happen overnight. That appears to be the situation for XpresSpa.
The airport retail spa chain may not entirely give up its proverbial day job of massaging those en-route to destinations unknown. But the outbreak of Covid-19 did allow the company to smartly make a dramatic pivot to ensure its “open for business” placard is ready for all anxious travelers. And what XSPA did is allowing its investors to breathe a lot easier.
XpresSpa’s Big Pandemic Pivot
On June 5, the company partnered with privately held HyperPointe to convert its airport retail shops into Covid-19 screening and testing facilities under a new business unit called XpresCheck.
XpresSpa’s management recognized its real underlying asset is location, location, location. The company maintains 51 locations in 25 airports globally. Moreover, XSPA’s well-positioned retail space — which captures 80% of all U.S. air travel — offers the chance to pivot from more questionable discretionary services to the kind which are integral to today’s socioeconomic success.
So, how’s the switch going? It’s still too soon to tell, but its pilot program at New York’s JFK International is now officially underway. But similar to the other airports it intends to serve under XpresCheck, business could soon be taking off in a big way. XSPA stock has already rallied incredibly from an all-time low, but a successful business transition could propel it much higher.
InvestorPlace Markets Analyst Luke Lango crunched the numbers and believes the company’s first-mover advantage in testing services could generate sales of $550 million annually if the business continues to roll out as planned. A conservative price-sales multiple of 2x points toward a valuation just north of $1 billion. And with XpresSpa shares valued around $200 million today, it’s the bears that may be in need of a massage to relieve some stress.
XSPA Stock Daily Price Chart
Since XSPA initially soared on news of its testing intentions, shares have corrected by just more than 50%. Importantly, the correction has also formed a buyable, healthy double bottom.
Today’s price action is well-supported by an oversold stochastics crossover pattern. It also received pivot confirmation in Monday’s session. While there are no guarantees when it comes to buying into a stock, the technical picture here does look promising.
For investors who agree with XpresSpa’s prospects, my recommendation is to purchase the October $5/$7.50 bull call spread. With shares at $4.20, the vertical is priced for 45 to 47 cents. The defined and reduced risk strategy looks like a very nice way to leverage and profit from short- to intermediate-term business and chart momentum, while offering the type of protection that should have investors breathing easier.
Investment accounts under Christopher Tyler’s management does not own any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.