Xponential Fitness (XPOF): Regulatory Cloud Lifted, Value Play or Value Trap?

The Securities and Exchange Commission's 18-month investigation into Xponential Fitness (XPOF) concluded in July 2024 with no enforcement action—a critical inflection point for a company that had seen its stock plummet 60% since the probe began. With this regulatory overhang finally removed, investors now face a stark question: Is XPOF a contrarian value play primed for a rebound, or does its discounted valuation reflect deeper operational and financial challenges?

The SEC probe, which began in late 2023, had centered on allegations that XPOF exaggerated its financial health, franchise viability, and revenue projections. While the investigation's closure brought immediate relief—shares spiked 21% in pre-market trading—the stock remains deeply discounted. At $9.20 per share, XPOF's market cap of $357.6 million sits at just 5x fiscal 2026 EBITDA estimates, far below peer averages. For instance, Planet Fitness trades at 18x EBITDA, a multiple XPOF could theoretically approach if it executes on its turnaround plans.

The Regulatory Overhang Lifts, but Risks Remain
The SEC's decision to close the case without penalties eliminates one of the most significant headwinds for XPOF. Analysts at Jefferies argue this removes a “major uncertainty” and highlights the company's strengths: its portfolio of 10 fitness brands (including Club Pilates and Pure Barre), international expansion opportunities, and management's “franchisee-first” strategy. Their $26 price target—a 250% upside from current levels—implies a bullish bet on multiple contraction toward peer averages.

Yet skepticism persists. Guggenheim's “Buy” rating acknowledges the regulatory tailwind but notes lingering concerns: leadership instability, weak financial health (high leverage, negative free cash flow), and technical indicators suggesting bearish momentum. Spark, TipRanks' AI tool, rates XPOF “Neutral,” citing poor short-term fundamentals. The stock's average trading volume of ~641,000 shares also underscores liquidity risks for retail investors.

Strategic Shifts Under New Leadership
XPOF's leadership turmoil complicates the narrative. Former CEO Anthony Geisler was ousted in May 2024, and his successor, Mark King (ex-Taco Bell executive), retired abruptly due to health reasons in the same month. The search for a permanent CEO continues, but interim leadership has pushed forward with key initiatives:

1. Franchisee Engagement: A renewed focus on supporting franchisees, including simplified financial reporting and localized marketing tools, aims to rebuild trust after prior allegations of misleading disclosures.
2. Cost Discipline: Management has emphasized reducing corporate overhead and optimizing store-level expenses, critical given XPOF's thin margins.
3. Brand Portfolio Optimization: The company is doubling down on its most profitable divisions, notably Club Pilates, which Guggenheim estimates could command a standalone valuation of $2 billion+ if spun off.

These steps align with Jefferies' view that XPOF's core assets—its diverse brand portfolio and 4,000+ studios—remain undervalued. However, execution risks are high. Without a stable CEO, can XPOF deliver on its cost-cutting and growth targets?

Valuation: Discounted for a Reason?
XPOF's valuation is a double-edged sword. At 5x 2026 EBITDA, it's a fraction of Planet Fitness' multiple, but this discount reflects real concerns:
- Balance Sheet Stress: XPOF's net debt stands at ~$400 million, with interest coverage ratios under pressure.
- Growth Hurdles: Same-store sales at Club Pilates and other brands have lagged expectations, and international expansion (e.g., in Asia and Europe) faces cultural and regulatory complexities.

Yet bulls argue that even modest improvements could unlock value. If XPOF achieves its $400 million revenue target by 2026 (up from $250 million in 2023), and EBITDA margins expand to 20% (from 12% in 2023), the stock could approach $20–$25 per share.

Investment Thesis: A Contrarian Call, but Proceed with Caution
XPOF presents a compelling contrarian opportunity for investors willing to bet on regulatory clarity and operational turnaround. The stock's ~$9 price is a fraction of its $26 pre-investigation high, and the SEC's clean bill of health removes a major overhang. Analysts' average $13 price target suggests upside of ~40%, while Jefferies' $26 target implies outsized rewards for early believers.

However, risks are not trivial. Leadership instability, high leverage, and execution dependency on new initiatives make XPOF a high-beta play. Retail investors should consider:
- Entry Point: A “buy the dip” strategy, targeting sub-$8 shares if the stock weakens further.
- Hedging: Use options or a stop-loss given volatility.
- Time Horizon: A multi-year view is essential; near-term catalysts include CEO hiring, quarterly EBITDA improvements, and franchisee retention metrics.

Final Take
XPOF's post-SEC environment offers a rare chance to buy a multi-brand fitness operator at a historic discount. While governance and leadership remain open questions, the removal of regulatory risk and the potential for multiple expansion make this a stock to watch. For aggressive investors, XPOF could be a “value trap” turned “value triumph” if management delivers—though patience and a low-cost entry will be critical.

Positioning: Buy-to-hold at current levels, with a 12–18 month horizon. Target $15–$20 in 2026 if operational goals are met.