Ding, ding, ding! A heated stock battle is underway with boutique gym franchisor Xponential Fitness, Inc. (NYSE: XPOF) at the center of the ring. 

In the red corner — bearish short selling firm Fuzzy Panda. And in the green corner — bullish Wall Street analysts. 

On Tuesday, the first blow was dealt by Fuzzy Panda. Its report pinned Xponential Fitness as an “abusive franchisor that is a house of cards.” The short seller claimed that several of the company’s 10 fitness brands are struggling and many franchisees are operating “deep in the red.” It then took a swipe at founder and CEO Anthony Geisler, stating he “has a long history of misleading investors and business partners.” By the end of the day, XPOF shares dropped 37%.

In Wednesday’s round two, Xponential Fitness pushed back, calling Fuzzy Panda’s report “misleading” and “inaccurate.” The company outlined several points regarding the strength of its franchise system, balance sheet, culture and insider ownership. Board Chairman Mark Grabowski issued a statement backing Mr. Geisler and XPOF’s creation of long-term shareholder value. 

To some extent, XPOF’s quick response eased market worries as the stock rebounded 9% on Thursday. Trading volume was 63% of what it was during the selloff, which may be a good omen for Xponential Fitness support. Rest assured, though, this fight has only just begun.

How Is Wall Street Judging Xponential Fitness?

One sell-side research group, Baird, immediately lowered its price target to $23. The firm views the short report as an overhang that could weigh on XPOF for some time. 

Others on the Street, however, waited to hear the company’s rebuttal — arguably a more balanced analytical approach. All four analysts reached the same general conclusion in reiterating their buy ratings. 

Among those coming to XPOF’s defense was Raymond James, which called the brutal selloff “overdone.” Evercore ISI conceded that certain business practices challenged by Fuzzy Panda warrant review but still considers the company’s long-term growth potential to be intact. Jeffries issued its own report, ‘Short Report Seems Like a Stretch,’ that offered reassurance about XPOF’s ability to produce healthy financial results. 

While the bullish backers made some adjustments to their price targets, the group’s average target of $39 suggests XPOF will not only recover its losses but reach a new record high.

Assuming there are no illegal ‘performance enhancers’ in Xponential’s books, it’s hard to argue with the results. Through the end of the first quarter, trailing 12 months' revenue jumped 71% to $265 million. Membership was up 48% driven by post-pandemic demand for social, structured studio classes. The franchisor’s 2,382 U.S. studios are more than its two nearest competitors — Orange Theory and F45 — combined.

What Is Xponential Fitness’s Growth Outlook?

The booming popularity of Pure Barre, Club Pilates, Stretch Lab and other boutique fitness brands has driven 26% global studio growth since 2017.  Given this track record, management’s expansion and financial targets seem reasonable. The company plans to open at least 500 new studios annually and generate low to mid-teens revenue growth over the long haul. 

After posting a much narrower $0.02 per share adjusted net loss in Q1, margins appear to be heading in the right direction. XPOF is expected to swing to a profit this year, and from there, profits are expected to more than double. 

Between 1) growing interest in boutique over big-box fitness experiences among affluent consumers and 2) the scale benefits of rapid footprint expansion, such a leap in profits makes sense. Monthly memberships of $99, $199 or more, along with add-on revenue sources, can add up quickly when you have a fast-growing membership base.

Based on the consensus estimate for this year, XPOF is trading around 28x earnings. Planet Fitness (PLNT) shares are going for 31x. The big payoff though is next year.

XPOF’s P/E ratio based on 2024 earnings is only 13x. This is roughly half PLNT’s 2024 multiple. And considering profits are slated to more than double from 2023 to 2024, paying 13x for 100%-plus profit growth looks like a huge steal.

Of course, consensus estimates could change dramatically for the worse if Fuzzy Panda’s red flags prove true. By the time second-quarter earnings roll around, we’ll have a better idea of whether XPOF is a powerlifter…or a downward dog.