Xponential Fitness, Inc. (NYSE: XPOF) was the best performing U.S. stock with a market capitalization of at least $25 million on June 17th. The fitness and wellness brand franchisor jumped $3.86, or 34.3%, on the day, as the company announced that Mark King would immediately become XPOF’s CEO and join its Board of Directors. XPOF’s portfolio of brands includes Club Pilates, the largest Pilates brand in the U.S., and CycleBar, the largest indoor cycling brand in this country.
Mr. King was CEO of Taco Bell beginning in August 2019 and guided the brand through the pandemic and pushed the fast food company to record-breaking growth in its international and digital businesses before he retired in late 2023. Before that, he served as president of adidas North America and as CEO of Taylor-Made adidas Golf. Under his leadership, adidas North America doubled its market share, and the golf unit became the most profitable golf company in the world, according to Nation’s Restaurant News.
Investors are clearly betting that if XPOF persuaded an executive with the track record of Mr. King to join a company as small as XPOF (a $726 million fully diluted market cap after today’s move), there must be significant value in the company. In addition, it seems likely that if Mr. King wanted to return to the corporate world, he probably had many other options beside XPOF – and he turned down all other suitors.
Of course, investors are also hoping that lightning will strike twice with respect to former Taco Bell executives. Brian Niccol, the acclaimed CEO of the extremely successful Chipotle Mexican Grill, Inc. (NYSE: CMG) restaurant chain, was the CEO of Taco Bell for a 3+ year period ending in early 2018 before he agreed to accept the same position at CMG.
XPOF reported revenue and adjusted EBITDA of $79.5 million and $29.8 million in 1Q 2024, both of which compare favorably to $70.7 million and $22.9 million, respectively, in the year-ago period. Based partly on these results, XPOF expects its full year 2024 sales to reach $340-$350 million and its adjusted 2024 EBITDA to range from $136 to $140 million.
XPOF’s enterprise value (EV) rose to just over $1 billion after today’s move, which implies the company trades at about 3x EV-to-revenue and 7x EV-to-adjusted EBITDA multiples. While a 3x revenue multiple is not unusual for a growth stock, a 7x cash flow multiple is quite low. The S&P 500 Index trades at about an 11x EV-to-EBITDA ratio.
Mr. King’s decision to join the company, together with its inexpensive cash flow-based valuation, could make XPOF an interesting speculation. Admittedly, the company could be impacted by an economic downturn, as consumers probably pull back at least somewhat from fitness spending in such a scenario, but XPOF’s ability to bring on board an executive with Mr. King’s track record suggests there could be substantial value in XPOF’s shares.
Stocks.News does not own positions in companies mentioned
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Jim McFadden
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Jim has worked as an equity analyst and portfolio manager on Wall Street for more than 25 years, first as Institutional Investor-ranked utilities analyst with Bear Stearns and Goldman Sachs, and then as a long-short portfolio manager with hedge funds such as Amaranth Advisors and the Bass Brothers. In addition, he headed JP Morgan’s North American equity proprietary trading desk. Jim hold...