Year-to-date, Virgin Galactic (NYSE:SPCE) stock is up about 9%, but that number tells only half the story of the spaceflight company’s shares. On Feb. 20, SPCE stock hit an all-time high of $42.49. Since then it has been in a freefall. It now hovers around $12, a decline of about 70%.
In January, hardly anyone could have foreseen a global pandemic affecting not only daily lives around the world but also broader markets, and now it is not quite possible to know what the full extent of the current selling may be, given the current reality surrounding the COVID-19 pandemic, investors’ confidence has left the marketplace.
It’s hard to see much positive momentum returning to SPCE stock, or to other speculative and richly valued companies, in the weeks to come. However, investors with a long-term horizon whose portfolios can also weather further volatility may consider buying into the shares of this exciting venture.
SPCE Stock Investors Participate in a Space Startup
Virgin Galactic defines itself as “the world’s first commercial spaceline and vertically integrated aerospace company.” Many investors know is as the first space tourism company. SPCE is part of Sir Richard Branson’s Virgin Group. He had previously founded Virgin Atlantic Airways which itself is owned in part by Delta Air Lines (NYSE:DAL).
The company went public via a reverse merger on Oct. 28, 2019 at an opening price of $12.34. In other words, the SPCE share price is currently approximately back at that initial level.
Recent academic research co-authored by Steven Muegge of Carleton University and Ewan Reid of Mission Control Space Services highlight that we are witnessing a “paradigm shift” in the space industry.
They conclude that “once the exclusive domain of government, military contractors, and incumbent aerospace companies, space is increasingly accessible to new entrants founded by ambitious, well-resourced, and well-connected entrepreneurs from outside the traditional industry.”
Going forward, SPCE management plans to run “a regular schedule of spaceflights for private individuals and researchers” from its operational hub and “spaceport” in New Mexico (NM). As of late February, its total number of staff in NM was 145.
Within this new decade, space tourism could become a market of $3 billion. And by default, the prospects for SPCE stock could be risky, yet exciting and rewarding.
Virgin Galactic Has Little Revenue
On Feb. 25, the group released its financial results for the fourth quarter and full year ended Dec. 31, 2019. It was the first quarterly report as a public company.
In Q4, its revenue was $529,000. On the other hand, net loss came at $73 million. So we cannot talk about profits at this point. The group also had cash and cash equivalents of $480 million as of Dec. 31.
Its reusable suborbital vehicles are designed to reach “space altitudes on frequent, affordable, and safe suborbital voyages.” Each spaceshift will have two pilots. Virgin Galactic plans to carry upto six passengers in its spacecraft at a time. The price tag would be $250,000 per person. As of Feb. 23, it had received 7,957 registrations of interest in flight reservations.
These passengers, or “Future Astronauts,” will also be required to take a pre-flight training program on-site in New Mexico. “Pre-flight training will ensure that each astronaut is mentally and physically prepared to savour every second of the spaceflight and fully equipped to fulfil any personal objectives.”
CEO George Whitesides was pleased with the progress made in 2019. He also emphasized the high level of interest from potential customers.
At the time of the quarterly release, Virgin Galactic was aiming for completing the world’s first commercial spacecraft into suborbital space in 2020. Now, it does not look so clear-cut. Many countries have closed down national borders. In addition, many cities and nations are operating under states of emergency.
Thus it’d be highly difficult to assume that passengers would be able to attend a pre-flight training or travel to space for fun in the coming months.
Investor Takeaway on SPCE Stock
The past month has been one to forget for many investors. Travel and tourism companies have been hit especially hard. It will be a while before anyone is going anywhere far away from their homes. And going into space for pleasure is likely to be out of the question. Thus Virgin Galactic’s space tourism timetable looks questionable at this point.
As I write, global sports events are being pushed back a year or so. I’d also expect delay of at least several months or even a year for the first flight into space.
Therefore, it may be some time before the SPCE share price stabilizes and finds a bottom. In other words, I do not expect it to go back to the February highs any time soon.
However, if you’re ready to buy into the “space story” and are happy to wait several years, then SPCE stock may be appropriate for your portfolio and you may consider buying the dips.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.
