Virgin Galactic Holdings (NYSE:SPCE) has been one of those divisive stocks that investors either love or hate. On one hand, SPCE stock is a bet on space tourism, a new frontier that many believe will grow by leaps and bounds in the decades to come. On the other hand, some worry that Virgin Galactic is just a passion project for its eccentric owner Sir Richard Branston.
Virgin Galactic stock left up 8% over the past week after Vertical Research Partners’ Darryl Genovesi said he expects the share price to rise to $29. Genovesi cited the company’s recent Space Act agreement with NASA as a reason to be enthusiastic about the company’s potential.
If Genovesi’s prediction is true, that would imply a more than 50% upside from where the stock is trading today— so does that make it a buy?
SPCE Stock’s Expanding Potential
Virgin Galactic’s collaboration with NASA is a valuable piece of the firm’s overall strategy. It makes Virgin Galactic stock the only way to play the government’s interests in expanding space travel. As Genovesi put it, [the agreement] sounds like good progress toward commercialization at the core suborbital space tourism business, even in this unprecedented environment.”
The contract with NASA means Virgin Galactic will provide suborbital and orbital space transport to everyone from tourists to researchers.
What About SpaceX?
Virgin Galactic is the only way for the average investor to get a piece of the space tourism space, because it’s the only publicly traded space travel stock. Elon Musk’s SpaceX is the other prominent player, but the firm isn’t available to trade.
For that reason, Virgin Galactic stock isn’t just trading on its own merits. Investors often flock to Virgin Galactic at any positive news, whether it be for SpaceX or Virgin Galactic itself.
Is $29 Feasible?
As it stands today, Genovesi’s price target implies that Virgin stock will climb just under 50% higher in the months to come. Of course, anything is possible— especially in today’s volatile market— but is it likely to materialize?
Virgin stock was above $40 per share within the past 52 weeks, so it certainly isn’t out of the question.
For now, Virgin Galactic is still just the bones of an idea. It’s a business model that hasn’t yet been tested because we’re still years away from sending people into space for fun. To add, it’s a business model based on just the top 1% of consumers. Only the super-rich will have the cash to take flight, and I’d question whether that’s enough to sustain SPCE’s business.
InvestorPlace’s Mark Hake noted that just to break even, Virgin Galactic needs 960 people paying $250,000 each year. Right now the firm has almost 8,000 people on its waiting list, so that’s a possibility. But SPCE isn’t the only company offering tourist flights— SpaceX and Jeff Bezos’ Blue Origin are also cooking up a similar concept.
With three big names all vying for a market of roughly 10,000 people, it’s not the most compelling investment.
The Bottom Line
Investing in space tourism is a long-term trend for investors who have time and a stomach for volatility. Without an actual service and paying customers, it’s impossible to estimate demand and whether or not Branston’s company is feasible.
As the only way to invest in space travel right now, Virgin stock is a unique way for investors to jump in early on a trend that could explode over the next decade.
There’s definitely a case to be made for Virgin Galactic, especially now that the company has secured a contract with NASA.
But all of that isn’t enough to convince me to throw money at Virgin Galactic stock. Just because it’s the only play on space travel, doesn’t mean it’s the right one. I think much of Virgin Galactic’s share-price is based on hype rather than fundamentals. Perhaps when the world has come closer to actually offering space tourism services, Virgin Galactic will make for a sound investment. However, one of the other two firms vying for the top spot may have gone public by then, offering investors a superior choice.
I think investors could better deploy their money elsewhere right now, especially with the high degree of uncertainty that the future holds.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.
