We came across a bullish thesis on Xponential Fitness, Inc. (XPOF) on Substack by Inflexio Research. In this article, we will summarize the bulls’ thesis on XPOF. Xponential Fitness, Inc. (XPOF)’s share was trading at $8.18 as of March 25th. XPOF’s trailing and forward P/E were 25.80 and 18.59 respectively according to Yahoo Finance.
A group of people in the fitness studio doing a yoga or pilates class.
Xponential Fitness (XPOF) recently reported its Q4 2024 results, and the market’s reaction was swift and severe, with the stock declining by 50% in less than a month. Despite beating revenue expectations at $83 million (vs. $81 million estimated), EBITDA missed at $31 million compared to the expected $35 million. However, the real blow came from the 2025 guidance, which significantly underwhelmed. Revenue projections of $315-325 million were well below expectations, while EBITDA guidance of $120-125 million, though up 5% year-over-year, missed the $135 million target. Additionally, net studio openings of 210 fell far short of the previously anticipated 300-400 range.
Several red flags likely drove investor concerns. Management had to restate 2023 financials and make minor adjustments to prior years, though this was a relatively minor issue. A bigger problem was the delayed filing of Franchise Disclosure Documents (FDDs), which prevented the company from selling new licenses, adding to uncertainty. As of now, all but one FDD has been filed. Franchise closures remain elevated as underperforming locations are being pruned, keeping lease termination and legal expenses high, which will weigh on free cash flow in 2025. Furthermore, the CEO suggested that additional brand divestitures could be on the table if performance does not improve, with Rumble and CycleBar being likely candidates.
Despite these challenges, there were a few bright spots. System-wide sales are expected to grow 13%, with same-store sales increasing at a mid-single-digit rate. The disconnect between system-wide sales and revenue is due to changes in the company’s equipment and inventory sales model. Average unit volume (AUV) reached a new high of $668,000 in Q4, driven by strong performances from Club Pilates and Yoga Six, along with sequential improvements in StretchLab. Same-store sales for Club Pilates, XPOF’s most established brand, remain robust, signaling that the company’s core business still has strength.
Looking forward, the investment case for XPOF hinges on whether management can turn around struggling brands and restore investor confidence. Club Pilates alone may still be worth around $17 per share, and once weaker franchisees are removed, the overall business should be healthier. The company is also expanding internationally, which could provide long-term growth opportunities. If franchise closures stabilize, free cash flow will improve substantially. However, challenges remain, particularly in reviving same-store sales at Pure Barre and StretchLab, which still contribute 28% of total system-wide sales. Selling off smaller brands could boost EBITDA, but it also raises questions about the overall strategy. If divestitures accelerate, investors may start to view XPOF as a collection of fitness brands with uncertain longevity rather than a cohesive, scalable portfolio.
Fitness stocks often struggle with investor skepticism, and XPOF’s current struggles have only fueled concerns about its long-term positioning. While the CEO argues that the company expanded too fast and now just needs to refine its processes, the stock is unlikely to see a meaningful recovery until churn drops to 3% and the weaker brands show improvement. Given the current uncertainty, waiting for clear signs of stabilization may be the smarter approach. The upcoming investor day in May should provide more clarity, but for now, the stock seems likely to trade sideways. With 2027 target price of $20.70, the long-term potential remains, but execution will be key.
Xponential Fitness, Inc. (XPOF) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held XPOF at the end of the fourth quarter which was 22 in the previous quarter. While we acknowledge the risk and potential of XPOF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XPOF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.