Earnings season always ramps up the excitement and in this circumstance, much anxiety. However, I think it’s safe to say that no other company has brought out the oddity factor as much as space travel and tourism specialist Virgin Galactic (NYSE:SPCE). Scheduled to release its first-quarter earnings report on May 5, speculators are curious about how SPCE stock will respond.
On paper, covering analysts expect Virgin Galactic’s earnings per share to lose 15 cents a pop. Individual estimates range from losses of 18 cents to 12 cents. For revenue, the situation is equally unimpressive, with Virgin expected to only ring up $700,000. Considering that SPCE stock currently has a market capitalization of a bit under $4 billion, it’s obvious that people who are buying shares are doing so on its potential.
Still, you’ve got to wonder about the wisdom of that thesis, especially with the novel coronavirus disrupting the global economy. Prior to the outbreak spiraling into a catastrophe, Virgin Galactic released its Q4 report on Feb. 25.
As you would expect, the results mostly failed to impress, with the company disclosing a larger-than-anticipated EBITDA loss. Further, SPCE generated only $529,000 in sales, down significantly from the $800,000 in the previous quarter.
However, one very conspicuous positive was demand from potential customers. Keep in mind that tickets for the space flight are $250,000 a head. Yet management received 7,957 registrations of interest since December 2018. Three months prior, Virgin Galactic reported 3,557 registrations.
Of course, that didn’t help SPCE stock. As we headed into March, the coronavirus turned into a genuine global threat. But if we didn’t have this crisis, would SPCE have legs?
Why You Should Take a Pass on SPCE Stock
In my opinion, the answer is no. In fact, in my head, I used a colorful word in front of my no (as well as an even more colorful word as a suffix). But this is a family resource, so I’m going to keep it clean.
Let’s address the low-hanging fruit first. In a world where suddenly cash is king, people don’t want to spend their funds exclusively on consumptive resources. And from my perspective, space travel is the very definition of consumptive. If you read the fine print, Space Galactic is offering a few minutes of fun for a quarter-of-a-million dollars.
You don’t have to dig too deeply into your imagination to find a pleasurable activity that’s just as fleeting but for a far less expense.
Of course, the counterargument is that Virgin Galactic caters to the ultra-wealthy. Therefore, SPCE stock is mostly immune to the regular folks’ concerns. Except that I don’t think it is.
In 2018, the Pew Research Center conducted an opinion poll about what operations American adults felt NASA should prioritize. Not surprisingly, most respondents declared that space exploration should focus on issues that matter to earthlings, such as climate change, orbital threats (such as asteroids) and space research.
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What Americans believed were frivolous ambitions were sending astronauts to Mars and the moon. And this makes sense because while these are achievements, they are personal ones.
Now imagine that waves of wealthy individuals go out on these space flights. As completely frivolous, personal activities, they will receive significant backlash, especially at a time like this.
Believe me, it will matter. Because those fortunate individuals are likely tied to big corporate interests, which will then receive a horrendous PR backlash.
History Is Warning You to Run Away
If you needed another reason to abandon the contrarian idea for SPCE stock, then just crack open your history book. It’s replete with failures of aeronautical projects geared toward affluent passengers.
For instance, the Tupolev Tu-144 is emblematic of Soviet envy and ineptitude. Dubbed “Concordski” because of its glaring similarity to the Concorde, the Tupolev offered supersonic flights for well-heeled communists. Long story short, the project was a disaster.
Some might argue that it’s unfair to shine a spotlight on the failed U.S.S.R. In that case, just remove the last two letters and let’s talk about the U.S. Oh yeah, we also had our American Concorde. To give credit where it’s due, at least the Soviets flew some passengers. To quote the BBC’s Stephen Dowling, the American Concorde “became mired in political turmoil, environmental protests and spiralling [sic] costs.”
You want political turmoil? Try going on a space flight while millions are starving back home. From that context, you can understand why the rich may not be so willing to launch. It’s also telling that the real Concorde has also failed.
Nevertheless, you can buy SPCE stock on the basis that this time is different. But just know that you’re taking a huge risk.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
