Virgin Galactic (NYSE:SPCE) is one of many companies in the market today where the numbers don’t matter. SPCE stock is climbing despite the unknowns Virgin Galactic faces.
The company hopes to do intercontinental flights that briefly enter low Earth orbit. It hopes to do them cheaply by launching off larger planes before engaging on-board engines. It hopes to be offering commercial flights in a few years. Virgin Galactic even hopes to get you from the United States to Sydney in a few hours.
Meanwhile, the company struggles to perfect its system, prove its safety and keep generating the hype needed to stay in business.
It’s a mark of just where the market is that, so far in 2020, that has gone quite well. The shares are up almost 30% year to date.
Richard Branson’s Mess
Until Elon Musk’s SpaceX or Jeff Bezos’ Blue Origin seek capital from the public markets, Virgin Galactic is the only crazy billionaire space stock.
The crazy billionaire in this case is Richard Branson. He has had to sell out what was a 46% holding in big tranches to support Virgin Atlantic, the airline he co-owns with Delta Air Lines (NYSE:DAL). Those sales went well. Since they also cleared out warrants Branson held, they were seen to be bullish.
Virgin Galactic’s efforts cost about $200 million per year. At the end of March, it still had $431 million of cash. The Federal Aviation Administration issued rules about private human space flight in March. But formal safety regulations won’t arrive until 2023.
SPCE Stock Has No Fundamentals
Until it can take passengers, Virgin Galactic stock is tied to the market’s moods and the hype over commercial space travel.
When the market was in a good mood in February, before the novel coronavirus, SPCE stock traded as high as $40 per share. People went on TV to “explain” it, but there was nothing they could say. There was no news.
A second stage of speculation was a UBS report in March saying that using space as Virgin Galactic proposes could be a $20-billion business in 2030. The report said space tourism could be a $3-billion opportunity. If Virgin Galactic can get 100 passengers onto a flight, cutting travel times 80%, and charging $2,500 per ticket, the estimate could be conservative, UBS wrote.
The shares got a third boost in early June, after SpaceX sent two astronauts to the International Space Station. Shares rose 6% but, again, this was not news relevant to Virgin Galactic.
What Can We Say?
When forced to say yea or nay on SPCE stock, most analysts start dancing.
Making money with it isn’t rocket science, InvestorPlace’s David Moadel wrote recently. He recommended a low-key, patient approach. Ian Cooper looked at the same set of facts and suggested avoiding the stock. Virgin Galactic has been taking deposits on flights, worth $100 million in future revenue, but can’t yet fulfill those contracts.
TV analyst Jim Cramer considers most of the action a game. There were spikes of short interest in February and in May. As much as 30% of the float is sometimes being borrowed on the hope of lower prices. Take away that pressure and the stock settles back to Earth.
The Bottom Line on Virgin Galactic
There are stocks you invest in for income, stocks you invest in for capital appreciation and stocks you trade.
Virgin Galactic is a stock you trade.
Its system works in theory. The company has done some test flights. But until there are real flights, with paying passengers, it’s all a guess.
The stock will rise or fall with news, with the market’s temperature with its own short interest. But, as Gertrude Stein said of Oakland, “there’s no there there.” Until there is, risk-averse investors should stay on the sidelines, and leave SPCE stock to the speculators.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.