Is now the time to bet on commercial space travel? That’s the question investors have to evaluate when considering putting money into Virgin Galactic Holdings (NYSE:SPCE). SPCE stock could see a major boost today thanks to the announcement of its Space Act Agreement with NASA.
The signed agreement will enable the company to facilitate commercial participation in “orbital human spaceflight.” According to the press release:
Under the agreement, Virgin Galactic will develop a new private orbital astronaut readiness program. This program will include identifying candidates interested in purchasing private astronaut missions to the ISS, the procurement of transportation to the ISS, on-orbit resources, and ground resources.
Since Covid-19 took hold, SPCE stock has been languishing right around $15 a share. Investors are now wondering if Virgin Galactic can get its mojo back and if SPCE stock can take flight once again. Could the Space Act Agreement be a game changer?
Skeptics Abound
There are many high profile voices in the financial industry who are skeptical of Virgin Galactic’s ability to make suborbital space tourism work for the masses. Skeptics point to the exorbitant cost of $250,000 per trip and the stringent health requirements that participants must meet.
People must be wealthy and in great shape to ride a Virgin Galactic ship into outer space – requirements that severely limit the pool of available customers. To date, about 700 people have signed up to eventually ride a Virgin Galactic rocket into Earth’s sub-orbit once the company is cleared to do so. Virgin Galactic has not flown any customers into space yet, although its spaceships have proven they can do so. CNBC’s Jim Cramer recently voiced his dislike of SPCE stock, stating “I don’t like it. It’s too dangerous for me.”
It appears that company founder Richard Branson is even skeptical of SPCE stock’s prospects. It was recently revealed that Branson himself sold 12.3 million shares of SPCE stock. In the past two months, Branson has sold 20% of his stock in Virgin Galactic. Large sales by Richard Branson, who has long been Virgin Galactic’s chief cheerleader, have contributed to SPCE stock’s depressed price and led analysts to wonder aloud if Branson will soon exit his position completely.
Yet keen observers noted that Branson sold his SPCE stock to raise capital to support his other businesses, notably hard-hit Virgin Atlantic airlines, that is 51% owned by Branson and 49% owned by Delta Airlines (NYSE:DAL).
Repositioning the Business
While space tourism may not takeoff the way Richard Branson and others had hoped, there does appear to be a growing role for commercial companies in space. Shares of SPCE stock got a bump a few weeks ago after Elon Musk’s SpaceX successfully delivered NASA astronauts Bob Behnken and Doug Hurley to the International Space Station aboard a SpaceX Crew Dragon capsule.
Commercial space ventures seem to be popular among celebrity CEOs and world-famous billionaires. In addition to Mr. Branson’s Virgin Galactic and Mr. Musk’s SpaceX, Amazon’s (NASDAQ:AMZN) Jeff Bezos is behind a commercial space venture called Blue Origin.
NASA seems keen on partnering with the private sector to accomplish its myriad goals. On June 19, NASA Administrator Jim Bridenstine said that astronauts would soon be cleared to take suborbital spaceflights aboard the commercial rocket ships of both Virgin Galactic and Blue Origin. In a Tweet, Bridenstine said: “NASA is developing the process to fly astronauts on commercial suborbital spacecraft. Whether it’s suborbital, orbital or deep space, NASA will utilize our nation’s innovative commercial capabilities.”
This bodes well for the future of Virgin Galactic, especially now that the partnership is official. The company has been repositioning itself to take advantage of opportunities with NASA rather than focusing exclusively on space tourism.
George Whitesides, Chief Executive Officer of Virgin Galactic was quick to praise Bridenstine’s comments via Twitter, saying in his own Tweet: “We look forward to working with the agency to advance this exciting capability to fly NASA astronauts.” Virgin Galactic has been testing its VSS Unity SpaceShipTwo rocket to go beyond sub-orbit and position it for future trips to the International Space Station.
Additionally, Virgin Galactic announced in May a partnership with NASA to develop high-Mach vehicles that can travel at supersonic speeds (faster than Mach 2). It will also deliver astronauts and supplies quickly and efficiently to the International Space Station. Boeing has invested $20 million into Virgin Galactic’s high-speed mobility work.
Since May, the company has been testing its new “Unity” spaceship over the deserts of New Mexico, the site of its home base known as Spaceport America. Virgin Galactic hopes to use the Unity craft to fly deeper into space. Clearly the company sees a future for itself beyond giving wealthy tourists a few minutes in zero gravity above the Earth.
The Bottom Line on SPCE Stock
There is a growing role to be played by commercial space companies as NASA looks to form private sector partnerships and contract out travel above the Earth. Whether Virgin Galactic can capitalize on contracts with NASA and other future opportunities remains to be seen.
In its most recent quarter, Virgin Galactic reported a loss of 30 cents per share, missing estimates by 12 cents. The company’s revenue in the quarter was only $238,000. What little revenue the company currently generates comes from engineering services. While the lack of revenue remains a concern, analysts generally remain bullish on SPCE stock.
Among three analysts who have 12-month price targets on SPCE stock, the average target is $22 a share, suggesting that the stock has a possible upside of 46.67%. The high price target for SPCE stock is $24 per share and the low-price target is $20 a share. There is currently one “hold” rating and two “buy” ratings on the stock.
SPCE stock is a speculative play right now. Investors wanting exposure to the commercial space sector and its future potential should view Virgin Galactic as an opportunity – especially since other leading companies such as SpaceX and Blue Origin are not publicly traded. However, investors who are concerned about a company’s financial health and near-term risk may want to wait for the commercial space industry to develop and mature before climbing aboard Virgin Galactic.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole does not own any shares of SPCE stock.
