What happened
Week to date, shares of Xponential Fitness (XPOF 2.73%) were down 13% through Thursday's market close, according to data provided by S&P Global Market Intelligence.
The boutique fitness franchisor updated investors on its long-term growth targets this week. By 2026, the company expects to reach $2.33 billion in systemwide sales with revenue of $405 million. This includes opening 500 new studios. The company also announced a new partnership with Gympass, a leading corporate well-being platform.
The company has been enjoying tremendous momentum in recent years, but the growth suggested for the next few years was apparently not enough to please the market.
So what
Xponential Fitness has grown revenue about fivefold over the last five years. It is on pace to achieve 2023 revenue of $295 million to $305 million, representing growth of approximately 22% over last year. The $405 million target for 2026 would imply annualized growth consistent with those trends.
The stock was already pricing in high growth expectations, with an expensive forward price-to-earnings (P/E) ratio of 36 after the sell-off. But the high P/E seems justified, considering how well the company has been executing its growth strategy in a difficult macroeconomic environment.
In the most recent quarter, Xponential Fitness reported same-store sales growth in North America of 15%. What's more, it is delivering profitable growth. It turned a year-ago loss of $0.07 per share into a profit of $0.05 in the second quarter.
Now what
The dip in the share price could be a good buying opportunity. Xponential Fitness just renewed its partnership with Lululemon Athletica and signed a master franchise agreement in France as the company executes its international expansion strategy.
