Sometimes, those of us who cover stocks for a living tend to be cynical when a business like XpresSpa (NASDAQ:XSPA) pivots to a new and different business model. However, if you’re chief executive officer (CEO) Doug Satzman, and your primary revenue source has been cut off by the novel coronavirus, the only thing you can do to keep XSPA stock from imploding is to come up with another way to generate a return on your assets.
For Satzman, the answer was to convert its airport spas into Covid-19 testing locations.
Naturally, our crack team of InvestorPlace contributors has lined up on both sides of the argument. I believe that both its new business model and the pre-Covid business model have merit. On the latter, I’m probably alone.
On the new business model, I’ve got several colleagues on my side of the ledger, including Louis Navellier, Luke Lango, and Chris Tyler. Most of the others are scratching their heads, trying to figure out how XpresSpa ever makes money.
The price of XSPA stock has dropped back from its initial surge to $7 in early June after the company announced its New York pilot program at John F. Kennedy International Airport’s Terminal 4.
While I wouldn’t put your kid’s college tuition into XSPA stock, if you’ve got some fun money to play with and understand the risks involved in XpresSpa’s pivot, I think you could double your money by the end of 2020.
Here’s my rationale.
XSPA Stock and Its Detractors
InvestorPlace’s Larry Ramer has a decidedly negative view of XpresSpa’s new business model. He believes it’s a disaster waiting to happen. His argument hinges on the basis that XpresSpa has no experience in this specialized medical service.
“XpresSpa has no experience in anything close to conducting coronavirus tests, and it’s partnering on the project with a company that also does not appear to specialize in providing medical services,” Ramer wrote June 29. “Meanwhile, XpresSpa is looking to charge companies and individuals for a service that’s widely available at no cost.”
Let’s consider both of these statements.
First, Ramer believes XpresSpa and its partner, HyperPointe, aren’t qualified to carry out Covid-19 testing. If I’ve learned anything during this pandemic is that there are all kinds of scientific and medical resources available to help these two organizations work their way through the process.
Secondly, why in god’s name would the Port Authority of New York and New Jersey let them anywhere near airport workers if the program XpresSpa and HyperPointe had put together was full of holes? They wouldn’t.
“We are thrilled to launch our first pilot testing site at JFK Terminal 4, and we are hopeful that this will benefit airport workers,” Saltzman said June 29 while announcing the launch.
“Together with JFKIAT and the Port Authority, we will support the safety and health of front-line airport workers and travelers as New York’s recovery plan takes form and plan to aggregate valuable testing data to share with the appropriate government agencies. Further, we hope to take learnings from this first pilot location to inform our expansion plans to other major airports in gateway cities.”
So, either you believe the Port Authority doesn’t care about the safety of the workers at the airport, or you believe the operators of JFK have done their due diligence. I would argue it’s the latter.
On Ramer’s second point, I’m not sure where he’s getting his data from, but according to Kaiser Family Foundation analysis, the cost can vary from $20 to $850 depending on the location.
“The price varies based on type of test performed, where it’s processed and the manufacturer. Lab tests developed by the Centers for Disease Control and Prevention were generally less expensive than non-CDC tests. Tests that allow for faster analysis of samples cost more,” CNN has reported.
The Bottom Line on XpresSpa Stock
From the airport’s perspective, if I have a tenant that could be in jeopardy of closing up shop (XpresSpa), and it proposes a program that can both keep airport workers and travelers safe while bringing in revenues to pay the rent, I’m going to be all over that proposal.
If this pilot is successful, and XpresSpa can scale the testing sites to more airports where it already has spas, Louis Navellier believes it could be an exciting growth play. For this reason, he rates it a buy.
I couldn’t agree more. When you get lemons, make lemonade. That’s what Satzman has done. I’m a lot more optimistic about its chances of success than many of my colleagues.
That said, it isn’t a sure thing by any means. However, as speculative bets go, it deserves serious consideration.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
😛 😜 😏 😄
The post Here Are the Reasons XpresSpa Stock Could Be Worth the Gamble appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.