The last time I weighed in on Virgin Galactic (NYSE:SPCE), I said it could revisit early 2020 highs thanks to space travel demand. There was even hopes the company could shake up the travel industry with transportation at hypersonic speed. That was on May 14, as SPCE stock traded at $15.88.
So far, unfortunately, the stock has been a dud. All thanks in part to the excessive volatility of the market, fears of a second round of the novel coronavirus and tension over the upcoming elections. While I’d love to tell you to back up the truck on SPCE stock, I can’t right now.
Unless something miraculous happens at Virgin Galactic, the stock could easily retest $12.50.
Space Travel Demand Is Strong
Once safe, space travel could be worth up to $3 billion by 2030, say UBS analysts.
“While space tourism is still at a nascent phase, we think that as technology becomes proven, and the cost falls due to technology and competition, space tourism will become more mainstream,” UBS analysts Jarrod Castle and Myles Walton said, as quoted by CNBC.
Should that happen, Virgin Galactic could be one of the top winners. However, at the same time, there are plenty of issues plaguing company. For one, Richard Branson is selling up to 12%, or $500 million worth of SPCE stock to free up cash for other travel businesses.
That alone has been putting added pressure on the company’s stock.
Virgin Galactic Hasn’t Turned a Profit
Of course, earnings haven’t been encouraging. In fact, in early May, the company posted revenue of $238,000 and a net loss of $60 million. It also said it had a strong cash position of $419 million as of late March 2020. That may give it enough case to take it through the year, but Virgin Galactic may have to act to raise equity to keep the lights on.
In addition, the company did note that its “One Small Step” space travel initiative did receive 400 deposit payments, which represents up to $100 million of potential future revenue. The bad news – before Covid-19, Virgin Galactic was hoping to complete its first suborbital mission in 2020. That’s not likely to happen – at least not this year.
“The full impact of the COVID-19 pandemic on the Company’s full year financial results and test flight program will depend on future developments, such as the ultimate duration and scope of the outbreak, the timing and impact of future stay-at-home orders and other government mandates, and the pace at which the Company can resume normal course operations. Virgin Galactic continues to monitor the impact of COVID-19 and will provide updates as appropriate,” says the company.
Plus, should the company fail to meet future targets, it could begin to lose investor interest in SPCE stock.
The Bottom Line for SPCE Stock
If I had the opportunity to travel to space, or even go on the Mars mission, I would at the drop of a hat. I’m sure millions of us feel the same way for a once in a lifetime opportunity. And if Virgin Galactic can get its financial house in order, and make space travel a reality, it could easily create a multi-billion-dollar opportunity.
“There’s a real business here. Virgin Galactic is charging $250,000 a flight. But there are, well, millions of millionaires who will pay that sum for a once-in-a-lifetime experience. And as the company grows and improves, those costs will come down,” says InvestorPlace analyst Matt McCall.
Until the coronavirus threat is over, and until we begin to see improvements to Virgin Galactic’s financials, I would avoid the stock. Near term, it could slip to $12.50 a share.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, he did not hold a position in any of the aforementioned securities.
