What happened

Shares of XPresSpa Group (NASDAQ:XSPA) were climbing again Friday after the airport spa operator executed a 1-for-3 reverse split before trading opened Thursday.

Today, XpresSpa shares were up 34% at the close.

A woman getting a massage

Image source: Getty Images.

So what

XPresSpa has pivoted to running COVID-19 testing sites in airports since its business model is currently inoperable given the plunge in airport traffic and the reluctance of passengers to get massages during a pandemic. The stock is one of several companies, including HertzLuckin Coffee, and other trendy overvalued stocks like Nikola and Genius Brands, that have soared in recent days. 

There's no real news driving this momentum. Rather, it seems to be day traders on Robinhood and other such platforms driving the high-volume moves hoping for a quick buck.

Reverse splits are generally made to avoid being delisted by stock exchanges, which require shares to trade for more than a $1, or to avoid the perception that a company is a penny stock. XPresSpa shares had traded for less than $1 for much of the year, given the challenges it faces around COVID-19.

Now what

Prior to the pandemic, XPresSpa was still a struggling company as revenue declined last year, and it posted a wide loss. Given the substantial challenges from COVID-19, there is little chance that an unprofitable business that generated less than $50 million in revenue last year is actually worth $200 million, about where the company's market cap is today.

Gamblers may want to take a chance on XPresSpa, but investors should stay away.

 

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