Virgin Galactic (NYSE:SPCE) is an aspirational stock. The bullish thesis on SPCE stock is far out in time, so by definition it is a buy for the long term. Meanwhile, investors love trading it. I had it on the schedule to write it up as a buy since last week and yesterday’s 23% gain stole my thunder. Nevertheless, this doesn’t change the fact that if you believe in space travel at all, then this is the stock you want to own almost by default.
The fundamentals are almost non-existent from the traditional metric sense. But I do believe in the team behind the venture. I am confident that Richard Branson would not get involved if Virgin Galactic did not have proper prospects for being a good opportunity. I am not alone thinking this, billionaire investor Chamath Palihapitiya is now the Chairman of the company.
In February he shared his opinions on CNBC and said “it’s a real thing.” This company will literally go where no other has gone before. Consequently, my base case on SPCE stock is that it will be higher in the future than now. This is a stock that could pass down through the generations much like Microsoft (NASDAQ:MSFT) from the 1990’s or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) from the 2000’s.
Currently, Virgin Galactic still loses money and the price of SPCE stock is about 800 times its sales. Clearly, it is a speculative bet, so investors should size the position accordingly. The options markets also offer alternative ways to reduce risk like selling covered calls while the bullish thesis develops.
SPCE Stock Charts Guide Investors While the Fundamentals Develop
While the fundamentals are still this murky, the only guide to timing is the technical knowledge on the charts. Earlier, we noted that the stock popped 23% on Tuesday and amazingly this is still 55% below the all-time high it set in the middle of February. Clearly people love the stock and maybe too much. The important part of this rally is that the bulls went above the point of control near $18 per share. If they can hold it, then they can try to breach the resistance at $22 per share.
More often than not, pivot levels are resistance on the way up. The traders need to battle over these areas of contention thereby creating congestion as the price goes through them. The most heated battle was over Feb. 27 and 28, so I expect the buyers to encounter selling as they try to go through that zone (see the chart above). On the other hand, resistance doesn’t mean traders should short it. It simply means that there is no rush to pile into SPCE stock all at once here. Those who stubbornly shorted it early February paid a hefty price for the trades. Back then, the trigger was breaching $20 per share.
Space Flight Could Launch Unlimited Markets
So why not take a large, all-in risk on SPCE stock now?
Because even if spaceflight is a guarantee over time, it may not be Virgin Galactic who brings it nor is it a guarantee to be in this format. Those who invested in the first hot air balloon in 1783 were not the home run winners. Their thesis that humans would fly was correct, they simply got the methods wrong. Spring forward to the current opportunity, we have enough information to make an educated guess that SPCE is on the right track. Even then, we would also probably see hints about better alternatives if they develop. Besides, this many smart people can’t be all wrong and I am comfortable leveraging their due diligence. Here are some opinions from Richard Branson and Chamath Palihapitiya last year.
Not everyone agrees with the upside, there are those who believe that Virgin Galactic is not the winner and that is okay. Every bull thesis needs the opposite side for it to pay. Without sellers there would be no opportunity to buy it. No, I am not arguing that SPCE is a sure thing because if that was the case, then there would be no reward.
The logic is owning SPCE stock for the long term as a calculated risk on the space flight market given what we know today. Besides, if they are first to get there, this would also give them a first foot in the door for whatever commerce opportunities born from the new frontiers.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
