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Why XPresSpa Stock Popped and Then Dropped Today

By Jeremy Bowman – Aug 13, 2020 at 5:05PM

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Plans to open a second testing facility revealed more challenges facing the company.

What happened

Shares of XPresSpa (XSPA 1.49%) were all over the map today as the operator of airport spas-turned COVID-19 testing facilities announced a new contract this morning. Investors initially applauded the news, but the early rally quickly gave way to concerns that there was a warning hidden in the press release.

The stock gained as much as 11% this morning before closing down 8.5%.

A gloved hand holding a vial labeled COVID-19

Image source: Getty Images.

So what

This morning, the company announced a planned expansion of its COVID-19 testing facilities into Newark airport, saying it had signed a contract with the Port Authority of New York and New Jersey and that the Newark facility would be up and running in the coming days.

This will be the company's second testing location, following the opening of a facility in New York's JFK airport. That location opened on June 22nd with a "soft opening" and this week expanded its services to the general traveling public, after previously only serving airport employees.

While investors initially applauded the move, it also underscores that the company's plan to convert its 50 spa locations into testing sites is moving slowly. This is a temporary business, after all, and one that won't be necessary once a vaccine is discovered, as most experts expect to happen by next year.

At the end of the press release announcing the opening, XpresSpa said that it is in active discussions about opening other testing centers, but "The company cannot provide assurance that it will be able to convert existing spas or open new centers or otherwise expand its XpresCheck brand on any particular timeline or at all."

Fears that the expansion of its testing business may not be what was promised seemed to drive the stock lower over the course of the day.

Now what

XPresSpa shares caught fire on sites like Robinhood earlier this year as day traders jumped on the storyline of the airport spa operator converting its space into testing centers. However, the company was in a weak position before the pandemic, operating at a loss, and it's hard to see, even in a best-case scenario, the testing initiative adding long-term value to the stock. With the slow rollout of its testing facilities and limited room for expansion, investors seem to be realizing that the plan isn't everything that XPresSpa bulls had hoped it would be.

  

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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XpresSpa Group, Inc. Stock Quote
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