On Friday, Lake Street Capital Markets adjusted its outlook on shares of Xponential Fitness Inc (NYSE: XPOF), reducing the price target to $20.00 from the previous $23.00, while still endorsing the stock with a Buy rating. The firm cited the second quarter's earnings miss and reduced guidance as factors for the adjustment but expressed confidence in the company's long-term prospects and the health of its franchisee-level operations.
Despite the setback in the second quarter, key performance indicators (KPIs) for Xponential Fitness showed positive signs, with new memberships and studio visits increasing by 17% and 20%, respectively. This suggests that customers continue to engage with and invest in Xponential's services. Moreover, franchise revenue experienced a 22% rise, same-store sales grew by 7%, and average unit volume (AUV) increased by 10% to $638,000.
Lake Street Capital Markets noted that the recent softness in retail sales contributed to the top-line miss but emphasized the underlying strength of Xponential Fitness's business model. The firm believes the company has used this period to recalibrate its guidance, providing the new CEO with a conservative framework to implement his strategy.
The investment firm anticipates that Xponential Fitness's stock may decline following the earnings miss and guidance reduction. However, they recommend investors to consider any potential dip in share price as an opportunity to buy. The firm asserts that the long-term opportunity for the company remains solid and expects a recovery from the near-term challenges.
In the context of the broader market, Lake Street Capital Markets finds Xponential Fitness's valuation compelling, noting that its multiple of 9 times EBITDA appears attractive compared to the greater than 15 times EBITDA multiple of its peers. The firm reiterates its Buy rating on the stock, albeit with a lowered price target of $20.00, based on revised future earnings estimates.
InvestingPro Insights
Adding to the analysis provided by Lake Street Capital Markets, real-time data from InvestingPro shows that Xponential Fitness Inc (NYSE: XPOF) has a market capitalization of $685.53 million and is trading at a P/E ratio of 32.09. The company's gross profit margin stands impressively at 68.57%, indicating strong profitability in its operations over the last twelve months as of Q2 2024.
Despite the earnings miss, Xponential Fitness has demonstrated robust revenue growth of 15.41% during the same period, underscoring the underlying strength of its business model.
InvestingPro Tips highlight that management's aggressive share buybacks may signal confidence in the company's value, while the revisions of earnings upwards by four analysts suggest positive sentiment about Xponential Fitness's future performance.
Moreover, the company has seen a significant return over the last week, with a price total return of 11.96%, which could interest investors looking for short-term gains. For those seeking more comprehensive insights, InvestingPro offers additional tips on Xponential Fitness, which can be found at https://www.investing.com/pro/XPOF.
Overall, these metrics and tips from InvestingPro align with the long-term potential seen by Lake Street Capital Markets, providing investors with a richer perspective on Xponential Fitness's current market position and future prospects.
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