The problem with Virgin Galactic (NYSE:SPCE) is typical of the hype-and-flop cycle associated with initial public offerings. Granted, the ascent of SPCE stock from $10 to more than $30 was pretty exciting while it was in progress.
But then, these things are basically the opposite of roller coasters. In other words, with stocks, the ride up is much more fun than the ride back down. Can SPCE stockholders reasonably expect another ride back up to $30 or higher?
It’s hard to know now as every little pop in the SPCE stock price seems to get flattened out soon afterwards. And as far as the company itself goes, there’s a mixed bag of positives and negatives to consider. So, let’s try to sort out the data from the hype as we examine this fascinating human–space-flight start-up.
SPCE Stock Is in the “Test Flight” Stage
It might seem odd to think of buying a stock as a way of testing something out. Yet, usually when you buy a piece of a company through stock shares, you’re testing out your hypothesis that the company will be profitable, or more profitable, at some point.
That’s doubly true when buying a stock that hasn’t been around for very long. IPO investing is speculative by nature. And SPCE isn’t your grandfather’s stock. It’s still in the “test flight” phase because the company is, to put it politely, not hugely profitable.
Would your grandfather have bought a stake in a company that generated only $238,000 in its first-quarter sales? Maybe not, but this is a different day and age. IPO investing is easier and more tempting than ever. Who doesn’t want to take an early position in tomorrow’s next high flyer?
Speculative market participants tend to be forward-looking, and perhaps a bit too much so. In the case of SPCE stock, however, investors can’t rely on strong historical profits, so they have no choice but to look forward.
And thankfully, at least there’s something to look forward to when it comes to Virgin Galactic. The company touts “existing customer base of 600 future astronauts who already have reservations on our spaceflights,” along with 400 refundable deposit payments.
The NASA Catalyst
And so, the future looks brighter for Virgin Galactic than the company’s first-quarter sales would suggest. Plus, there’s a significant tie-in with none other than the National Aeronautics and Space Administration, more commonly known as NASA.
You could say it’s one small step for Virgin Galactic as the company’s teaming up with NASA to further the development of human space flight. Heck, they even gave it a grandiose name:
“The Space Act Agreement (“SAA”), is set to enable and foster collaboration between NASA, Virgin Galactic and The Spaceship Company in order to advance the United States’ efforts to produce technically feasible, high Mach vehicles for potential civil applications.”
Virgin Galactic Holdings CEO George Whitesides made it sound as if this partnership is crucial not just for the company, but for America:
“Virgin Galactic’s unique experience and innovative technology platform will, in partnership with the historic capabilities of NASA and other government agencies, enable the progression of new technical steps that will improve US competitiveness.”
Okay, so maybe this is a big deal for America. But what should SPCE investors make of this? Should they be alarmed that the share price didn’t take a permanent moon-shot trip after the release of this news?
The significance of the collaboration between Virgin Galactic and NASA may have been lost on the easily distractible and oftentimes hard-to-please trading community. That being the case, the failure of SPCE stock to launch should be viewed as a mispricing and an opportunity.
The Takeaway on SPCE Stock
SPCE stock’s voyage to $30 was a round trip, unfortunately. But there will be flights in Virgin Galactic’s future, and there will be another trip to that $30 target price for the company’s most patient and intrepid shareholders.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.