OneSpaWorld: A Golden Cross Amid Exclusion—Unlocking Value in the Russell Microcap Drop

The exclusion of OneSpaWorld Holdings Limited (NASDAQ: OSW) from the Russell Microcap Index has sparked questions about its stock's valuation and future trajectory. For investors, such index drops often create temporary dislocations—opportunities to assess whether the fundamentals of a company still align with its price. In OSW's case, a closer look reveals a company navigating headwinds while positioning itself for growth. This analysis explores whether OSW's post-exclusion environment presents an undervalued entry point.

Financial Resilience Amid Exclusion

OneSpaWorld's Q1 2025 results underscore a resilient business model. Despite a 28% year-over-year dip in net income to $15.3 million—driven by non-recurring expenses and warrant liabilities—total revenues grew 4% to $219.6 million, while adjusted EBITDA rose 5% to $26.6 million. Liquidity remains robust at $73.8 million, with a $50 million undrawn credit facility, signaling financial flexibility.

The company's $75 million new share repurchase program (added to a prior $50 million effort) further highlights confidence. Since May 2024, OSW has repurchased 2.8 million shares for $49.1 million, reducing float and boosting per-share metrics. Combined with a $0.04 quarterly dividend (paid in June 2025), this dual strategy of capital return aims to attract income-focused investors.

Technical Bullishness: The Golden Cross

A key technical signal emerged in early 2025: OSW's 50-day moving average crossed above its 200-day moving average, forming a “golden cross” typically signaling a shift to a bullish trend. This coincided with the stock breaking above a critical support level, driving an 8% rise over four weeks.

Analysts project OSW to reach $21.19 by July 2025 (a 3.7% gain from its June 2025 price of $20.43) and $24.53 by November 2025—a 30.13% return from current levels. While these forecasts hinge on operational execution, the stock's 30-day volatility of 2.29% and 60% positive trading days suggest stability amid upward momentum.

Strategic Leverage: Cruise Ships and Resorts

OSW's growth hinges on its cruise ship partnerships and destination resorts. As of Q1 2025, it operates 199 cruise ships (up from 193 in 2024) and 50 resorts (a slight dip from 51 in 2024). The cruise sector's recovery post-pandemic, coupled with rising demand for spa-centric wellness travel, positions OSW to capitalize.

The company's 2025 full-year revenue guidance of $950–970 million (high-single-digit growth) and adjusted EBITDA target of $115–125 million align with this optimism. Management's focus on cost discipline and fleet expansion suggests scalability, even as it navigates macroeconomic headwinds.

The Russell Exclusion: A Catalyst or a Distraction?

The lack of clarity around the Russell Microcap exclusion date complicates direct causality between the event and stock performance. However, index exclusions often lead to passive fund outflows, creating short-term selling pressure. For OSW, this could have temporarily depressed its price, even as fundamentals remained intact.

Critically, OneSpaWorld's exclusion does not reflect poor performance but likely index-specific criteria, such as market cap or liquidity thresholds. The stock's subsequent recovery and golden cross suggest investors are now focusing on its operational strengths rather than index mechanics.

Risk Factors to Consider

• Index Exclusion Impact: While the exclusion's timing is unclear, passive fund selling could persist if the stock remains under scrutiny.
• Cruise Industry Volatility: Travel demand is sensitive to economic cycles and geopolitical risks.
• Warrant Liabilities: These non-cash charges, which pressured net income, could recur and dilute earnings metrics.

Investment Thesis: Buy the Dip, Target Long-Term Growth

For investors seeking undervalued stocks post-index exclusion, OSW presents a compelling case:
1. Valuation Metrics: At a June 2025 price of $20.43, OSW trades at a P/E ratio of ~13x (based on 2024 diluted EPS of $1.56), below its five-year average. Its P/EBITDA of ~8x also appears reasonable given its growth trajectory.
2. Technical Support: The golden cross and upward revisions in analyst estimates suggest a bullish bias.
3. Dividend and Buybacks: The $0.04 dividend (yield ~0.2%) and aggressive share repurchases reinforce capital discipline.

Entry Strategy

• Price Target: Use the $21.19 July target as a near-term upside marker.
• Stop-Loss: Set below the $18.90 support level mentioned in forecasts.
• Hold Horizon: 6–12 months to capture revenue growth and EBITDA expansion.

Conclusion

OneSpaWorld's exclusion from the Russell Microcap Index appears to have been a temporary headwind, overshadowed by its strong financials and technical bullish signals. Investors focused on long-term growth and undervalued stocks should consider OSW as a candidate for selective buying—provided they acknowledge the risks tied to its cruise-dependent model. With a golden cross in place and management executing on share repurchases, now may be the time to dip into this spa-and-cruise play before the market catches up.

Final Note: Monitor liquidity and warrant-related earnings pressures, but the fundamentals suggest OSW is worth a strategic position.