Virgin Galactic: Is it a Buy After Its Successful Space Flight Test?
Virgin Galactic (SPCE) shares have been all over the news this weekend due to their successful test flight on Saturday. The company’s shares are up nearly 75% since March 13th. Without a doubt, this has been a wonderful rally for bulls; however, it’s important to note that even after rising from $15.50 to the stock’s current price of $26.89, SPCE share are still down more than 57% from the highs that the company posted earlier in the year.
Virgin Galactic is an interesting company, probably known best for its billionaire founder, Sir Richard Branson. The Virgin brand gives the name a lot of brand recognition; however, the fact is, this is a pre-revenue company operating in an unproven, speculative industry, which has led to the enormous volatility that shares have experienced in recent years.
And yet, the successful test flight of the VSS Unity has put a very positive light on shares. Even before this weekend’s flight, we saw SPCE experience a strong rally, simply because of the news that it planned on testing its technology again.
Lou Whiteman, a Nobias rated 5-star analyst who writes for The Motley Fool recently published a piece, highlighting Virgin’s 20% pop last Thursday on the announcement that the company would once again begin test flights. Whiteman said, “Given that Virgin Galactic generated no revenue in the first quarter, the company's ability to advance through its testing program and reach the point where it is able to start flying paying customers is essential to it turning into the growth stock that investors hope it will become.”
Bullish investors were obviously excited to see the company return to the skies. However, even after the stock’s big pop last Thursday, shares were still down roughly 50% from its February highs. Whiteman said, “Virgin Galactic's potential is exciting, but the technical hurdles it must overcome are immense, and competition is coming.” The delays that the company faced in 2020 appear to have allowed competition to catch up. Most notably, in the form of Jeff Bezo’s private company, Blue Origin, which is also pursuing space tourism.
Robert Larkin, a Nobias 4-star rated analyst, touched upon the rivalry between billionaires Branson and Bezos in a recent Investor Place article, saying, “Branson’s long-held dream of creating a space tourism company has competition from fellow billionaire Jeff Bezos’s Blue Origin, which last month announced it would soon begin to sell tickets for rides on its own rocket called New Shepard.” Larkin showed the similarities of the two companies, saying, “Virgin Galactic ships fit six people. Same with Blue Origin ships. And Virgin only has two ships today, while Blue Origin has one.” Right now, Blue Origin is auctioning off one of the six seats of its New Shepard’s inaugural flight. The auction lasts until June 10th and right now, the highest bid is $2.8 million. The flight is currently scheduled to launch on July 20th and if you’re interested in placing a higher bid to win that seat you can do so on the company’s website.
This auction has garnered a lot of attention, due to the unique nature of the price and the extraordinarily high price tag. As Larkin puts it, “To be sure, suborbital space tourism will be very expensive. But for those who can afford it, the rocket rides offer a chance to do something only a handful of people have ever done before in the history of humankind.” It’s unclear as to who will win supremacy in the space tourism race. However, the rising price tag associated with the blue origin flight has bolstered share prices of numerous space related stocks, Virgin Galactic included.
But, this pre-revenue company still has a lot to prove, as highlighted by Whiteman, who wrote, “But make no mistake about it: Virgin Galactic still has a lot to prove this year. The stock has lost about half of its value from its late February highs, and the only way it can start heading back toward those levels is if these tests go well.”
Well, after Saturday’s good news and the continued rally that shares have experienced, growth investors are watching SPCE shares closely, to see if they can regain the positive momentum that they had earlier in the year. Seeking Alpha highlighted the company’s press release on Saturday, stating, “VSS Unity achieved a speed of Mach 3 after being released from the mothership, VMS Eve, and reached space, at an altitude of 55.45 miles before gliding smoothly to a runway landing at Spaceport America.”
In the release, Michael Colglazier, Chief Executive Officer of Virgin Galactic, was quoted saying, “Today’s flight showcased the inherent elegance and safety of our spaceflight system, while marking a major step forward for both Virgin Galactic and human spaceflight in New Mexico. Space travel is a bold and adventurous endeavor, and I am incredibly proud of our talented team for making the dream of private space travel a reality. We will immediately begin processing the data gained from this successful test flight, and we look forward to sharing news on our next planned milestone.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
The company continued, saying, “Following the flight, and in line with normal procedures, Virgin Galactic will conduct a review of all test data gathered and thoroughly inspect the spaceship and mothership. Once the team confirms the results, the Company plans to proceed to the next flight test milestone.” Up to this point, analysts aren’t reporting negative news. This appears to bode well for future flights, which clear the path for the company to begin planning commercial flights. And, as another Seeking Alpha report shows, this is putting pressure on the short sellers who’ve bet against SPCE shares. The article states that, “Virgin Galactic is the seventh largest short in the Aerospace & Defense Sector.”
Considering Virgin’s relatively small, $5.07 billion market cap, this is saying a lot (many of the company’s peers in the defense space are large cap companies). Right now, 21.7% of Virgin Galactic’s shares are sold short. This has the potential to create a short squeeze and more upside momentum if the company can continue to create positive sentiment around its stock. But, even with that potential, SPCE shares aren’t for the faint of heart. Investors betting for or against this company are likely going to be on a wild ride. And, as for whether or not Virgin will go “to the moon” as speculative investors like to say these days, or crash and burn, the Nobias 4 and 5-star rated analyst community remains divided.
Our algorithm tracked recent articles posted on the stock and we see 4 “Buy” opinions posted by blue chip analysts compared to 3 “Sell” opinions. In short, Virgin Galactic remains a battleground stock and this isn’t likely to change until the company (and the broader space tourism industry) matures.
Disclosure: Nicholas Ward is long SPCE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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