What happened
Shares of F45 Trailing Holdings (FXLV) beat the market in early trading on Tuesday, rising 17% by 11 a.m. ET compared to a 0.4% increase in the wider market. The boost didn't do much to erase recent losses, though, as the stock remains down nearly 80% so far in 2022.
That wider slump laid the groundwork for Tuesday's bounce, which appears to be driven mainly by short-term volatility.
So what
F45 Training, which operates gym studios around the world, didn't issue any operating updates that might explain such a big price swing. Its last update, in mid-August, showed modest sales growth of 12% thanks to the combination of an expanding base of franchisees and higher spending at existing locations. Yet investors are still worried about the company's slowing sales trends, which are pressuring earnings .
Management said in late July that it is searching for a new CEO and restructuring the business to boost efficiency, and that news has contributed to sharp declines in the stock price so far in 2022. Tuesday's rally should be seen in that context, with volatility to be expected in a stock that has fallen so quickly in the past several weeks.
Now what
F45 is still searching for a new CEO, who will likely bring strategic changes. In the meantime, the short-term outlook doesn't inspire much confidence. The company isn't yet able to easily fund its own expansion, either, and debt is becoming more expensive. Until sales trends pick back up, this growth stock might remain under pressure.
While shares could see further short-term spikes like the one that investors saw early Tuesday, a wider rally would require fundamental improvements in metrics like franchise revenue, studio openings, and net losses.
