Virgin Galactic Stock Won’t Benefit Now From SpaceX’s Success

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Virgin Galactic (NYSE:SPCE) stock has been one of the hottest trading names of 2020. The company, which went public via a special purpose acquisition company at $10 per share, blasted off to a high of $42 in February. Shares sunk back to $10 at the depths of the March crash, but have recovered to $17. And they could soar again soon. The market is in a speculative frenzy right now. On top of that, space travel is making major headlines.

SPCE Stock

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A week ago, Elon Musk’s SpaceX successfully launched its Crew Dragon vehicle. This was particularly momentous as it marked the first time that NASA astronauts flew on a private company’s shuttle. In effect, it signified that the era of private industry spaceflight has begun.

And, of course, that’s encouraging news for the fledgling space exploration and tourism industry.

You probably already know this, but just to be clear, SPCE stock has no relation to SpaceX. SpaceX is not publicly traded. You can’t buy it outright today. That said, you can buy Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and get a piece of exposure as it owns a nice chunk of SpaceX. And Tesla (NASDAQ:TSLA) stock benefits from SpaceX’s success as well thanks to the halo effect around Elon Musk. That said, you can’t own SpaceX directly for now.

That brings us to SPCE stock. Though seemingly having a related ticker symbol, SPCE actually represents Virgin Galactic, which has no economic interest in the Crew Dragon or other SpaceX flights.

SpaceX Blasts Off

SpaceX’s successful rocket launch has had an impact on Virgin Galactic’s stock. We saw this around the Crew Dragon launch. SpaceX intended to lift off on a Wednesday. Virgin Galactic stock traded up more than 5% that day with the excitement around SpaceX.

Once the launch was delayed, however, Virgin Galactic stock gave back its gains. The SpaceX launch subsequently happened on a Saturday when the stock market was closed.

Regardless of the sentiment-driven impact, fundamentally, these are very different businesses. The success or failure of SpaceX, in combination with NASA, has little impact on whether or not Virgin Galactic will be able to monetize commercial space tourism years in the future. While it would have been a setback for sentiment overall if SpaceX had been unsuccessful, it doesn’t necessarily follow that Virgin Galactic is worth any additional amount simply because SpaceX had a successful launch.

SpaceX Makes Recent Virgin Orbit Failure Look Worse

InvestorPlace’s Josh Enomoto recently highlighted how the Virgin Orbit planned launch did not live up to expectations. Virgin Orbit was supposed to demonstrate an ability to launch small payloads into space. However, the launch was a failure.

To be clear, Virgin Orbit and Virgin Galactic are separate entities. Yet the Orbit failure reflects badly on Virgin Galactic. As Enomoto explained: “Where this is crucial for SPCE stock is that although Virgin Galactic is focused on space exploration with human passengers, it utilizes the same launching concept as Orbit. Both platforms are carried into the air by a larger plane and dropped, with the platforms’ separate rocket system carrying them into the next leg of their journey.”

This question around Virgin’s launching capabilities reflects back to a bigger point. Virgin Galactic simply hasn’t proven that it is a viable business yet. It’s extremely rare for a company like Virgin Galactic to sell stock to the public so soon. There are key questions about the company’s technical capabilities, safety record and potential for future commercial success. The recent events amplify this uncertainty.

SpaceX is in the big leagues; it can deliver the goods. But we just don’t know about Virgin Galactic yet.

My SPCE Stock Verdict

I’ve said it before, and it’s still true: Virgin Galactic is a very cool concept. I’d be hard-pressed to short sell a stock like Virgin Galactic because it has the potential to change the world. If — and that’s a huge if — it is successful, the stock could be a massive winner.

That said, the odds remain long, at least for now. There are simply too many steps between here and profitability. Any sort of failure to get licenses, a vehicle accident or a shortfall in commercial demand could doom the franchise. One safety incident alone could cause traders to pummel the stock.

I get the speculative appeal. If you must take a shot at the stars, it’s understandable why you’d be interested in Virgin Galactic. Please be careful, though. Go into it knowing it’s not a high probability bet. You’re not investing in SpaceX by buying SPCE stock. You’re instead buying something that has a far longer road to possible success. It could work out, but don’t expect a smooth ride.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2020/06/virgin-galactic-spce-stock-spacex-success/.

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