On Tuesday, Baird, a financial services firm, adjusted its outlook on Xponential Fitness Inc (NYSE: XPOF), reducing the price target to $10 from the previous $14 while maintaining a Neutral rating on the company's stock.
The revision reflects a more cautious stance due to increased uncertainties, including the recent resignation of CEO Anthony Geisler, which was announced last Friday, and ongoing investigations by regulatory authorities.
The firm cited the current inquiries by the Securities and Exchange Commission (SEC) and the U.S. Attorney's Office as factors contributing to the heightened uncertainty. These investigations are seen as potential risks that could affect the company's valuation and future growth prospects.
Despite the challenges, Baird noted Xponential Fitness's recent performance, indicating a solid increase in membership numbers for April, with a 1.7% rise. This uptick in membership suggests that the company's core business remains robust.
The price target is based on a target trailing Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) multiple of 7X. This metric is used to assess a company's value compared to its earnings potential and is a common valuation tool in financial analysis.
The analyst from Baird expressed cautious optimism that Xponential Fitness could warrant a greater growth premium over time, provided it continues to sustain its recent performance. However, the firm is adopting a wait-and-see approach to gain more clarity on the outcomes of the ongoing investigations before reassessing the potential for growth premium.
InvestingPro Insights
Amidst the cautious outlook presented by Baird, recent data from InvestingPro shows a mixed financial landscape for Xponential Fitness Inc (NYSE: XPOF). The company's aggressive share buyback strategy, as highlighted by one of the InvestingPro Tips, indicates a management confident in the company's intrinsic value. Additionally, XPOF's impressive gross profit margins, which stand at a robust 69.61% for the last twelve months as of Q1 2024, reinforce the strength of its core business operations.
Despite the recent CEO resignation and ongoing investigations, XPOF's stock appears to be in oversold territory according to the Relative Strength Index (RSI), another InvestingPro Tip, which could signal a potential buying opportunity for investors. The company's low earnings multiple, with a P/E Ratio of 3.83, further suggests that the stock might be undervalued. However, with five analysts having revised their earnings downward for the upcoming period, investors should be mindful of the potential headwinds facing the company.
For those considering a deeper analysis, there are additional InvestingPro Tips available, which could provide further insights into XPOF's financial health and future prospects. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where they can explore these tips and more.
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