Shares of Virgin Galactic (NYSE:SPCE) have been crushed, like seemingly every other stock right now. For example, SPCE stock is down about 78% from the highs. For long-term investors, could this spell opportunity?
The decline in Virgin Galactic has a somewhat ironic — perhaps humorous — twist to it.
Some may joke that people will surely be booking future space flights now as a way to escape earth’s current problems, but that’s not what I’m referring to …
Instead, it’s that Virgin will not see its revenue impacted by the coronavirus, because it has almost no revenue!
Virgin generated sales of $529,000 last quarter, which, for a $2.4 billion company is basically nothing. So while the disease shouldn’t hurt sales, it’s not clear if that’s really a positive under the circumstances.
So why would anyone want to own SPCE stock?
The Future Holds Value for SPCE Stock
The destruction of the aerospace industry isn’t doing Virgin stock any favors right now. Boeing (NYSE:BA), General Electric (NYSE:GE), United Technologies (NYSE:UTX), Delta Air Lines (NYSE:DAL) and virtually any other stock connected to the sky is under pressure right now. That’s just the way it is.
As it stands though, Virgin Galactic is the only pure-play space tourism stock. And as companies like Boeing come under pressure, it’s creating an opening for innovative, young companies to fill the gap. That may not be the case over the next month, quarter or year. But as this gap opens, it allows companies like Virgin Galactic, SpaceX and others to carve out a long-term role and begin to thrive.
The company is clawing through current FAA regulations in an effort to get the go-ahead for space flights in 2021. It’s worth mentioning that Virgin does have a $20 million partnership with Boeing, but in my view, that simply lends credibility to the former’s current ambitions.
While everyone’s current focus seems to be on the tick-by-tick action in the futures market, Virgin Galactic has its attention turned to commercial flights and long-term opportunities.
Coronavirus Selloff
Part of the rise in Virgin Galactic was the result of a short squeeze. But another part of it is genuine investor interest. Many see the long-term opportunity in this company and knew that there would be bumps in the road.
Well, this my friends, certainly qualifies as a “bump.”
The coronavirus has dealt out a nasty selloff in the market, as investors dump equities hand over fist. Many equities — Virgin Galactic included — are plummeting right now. Unfortunately for Virgin Galactic, it doesn’t have the fundamentals to back it up. Well, at least on the income statement.
However, the balance sheet looks better than many would have expected. Current assets of $536 million — including $480 million in cash — easily topped current liabilities of $115.8 million. Other than ~$22 million in capital leases, it doesn’t have any long-term debt, either. That’s a good sign and will allow Virgin to have flexibility.
At its new 52-week lows on Wednesday, the S&P 500 was down more than 32% from its all-time high last month. Virgin Galactic has suffered a decline more than double that and thus, may be gifting investors a long-term opportunity.
Click to Enlarge
As you can see on the chart, $12 was a big breakout level. Now below it, prospective investors in Virgin Galactic have to decide what type of climate they want to invest in.
In that regard, investors can either buy with momentum at their back and wait for another breakout over $12. Or they can wait for a potentially deeper decline and get a lower price. Back in the fourth quarter, Virgin Galactic had decent support between $7 and $7.50.
Should the stock revisit that level, it will give investors a reasonable risk/reward setup.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
