Virgin Galactic (NYSE:SPCE) stock has been holding steady between $15 and $20 per share. But are shares in the space exploration company getting ready to take off again? Or, if recent stock market enthusiasm starts to cool, will we see the stock fall back to its prior lows?
It’s a tough call. Granted, right now Virgin Galactic remains highly speculative. It’s basically a publicly-traded startup. Investors today aren’t buying on near-term results. It’s the long-term story they’re betting on: the potential for space tourism to turn into a $20 billion dollar industry by the end of the decade.
This “story” helped propel shares to prices above $40 per share earlier this year. Yet, in recent months, investors have turned their attention to other “story stocks.” Virgin Galactic hasn’t been completely forgotten. It’s simply fallen to the back burner.
So, what does that mean in the near-term? Sure, there are many factors working on this company’s side. Yet, if overall markets start to dip, Virgin shares could take a dive as well. This may open a fantastic entry point for a long-term investment. But, it also means it’s best to take a “wait-and-see” approach for now.
Why You Can Still Get in on The Ground Floor With SPCE Stock
What’s that expression, hindsight is 20/20? With growth stocks like this one, you have to take a chance. Right now, it’s tough to tell whether you’re getting in on the ground floor. Or, if you’re buying at the top, right before the music stops.
But with regards to SPCE stock, it could still be a “ground floor” situation. Analysts like Alembic’s Pete Skibitski, are confident in the company’s prospects in the coming years. Launching coverage of the stock this month, the analyst gave shares a “buy” rating, and a price target of $23 per share.
His rationale? Skibitski believes the company could have “industry-leading profit margins” by 2023. Space tourism for now may only be affordable for the wealthy (more below). But, there’s enough multi-millionaires out there for the company to meet its initial targets.
This bullish sentiment isn’t an outlier among the analyst community. As InvestorPlace’s Laura Hoy wrote Jul 9, Vertical Research Partners’ Darryl Genovesi also rates shares a “buy.” That analyst has an even higher price target ($29 per share).
Genovesi’s bull case focuses more of the company’s recent deal with NASA. That deal itself isn’t an instant needle-mover. Yet, it does show the company remains a formidable contender in the “Billionare Space Race.” Billionaires Sir Richard Branson (and Chamath Palihapitiya) are behind Virgin Galactic. But, other billionaires, like Tesla (NASDAQ:TSLA) CEO Elon Musk (SpaceX), and Amazon (NASDAQ:AMZN) founder Jeff Bezos (Blue Origin) have thrown their hat in the ring as well.
Sure, it’s encouraging that many analysts think Virgin Galactic stock has runway. Yet, there are also numerous factors that could push shares back to lower prices.
Do Other Factors Make or Break The Bull Case?
We’ve discussed why Virgin Galactic stock could head higher in the coming months. But, what risks could send shares lower in the near-term? As I discussed earlier this month, cash burn remains a major issue with this company. Chances are the company will need to raise more capital in order to fund its development. In other words, expect dilutive equity raises in the future.
This may temporarily push shares lower, as the pie would be split into many more pieces. Yet, in the long-run, this necessary capital infusion could help the company meet expectations, sending shares higher from here.
Another major issue is the overall economy’s impact on this company’s growth plans. As high economic uncertainty continues, it’s seems doubtful there will be enough demand for the company’s $250,000 space-flight tickets.
Yet, as our own Matt McCall discussed, America’s widening wealth gap may mean there’s sufficient interest in the company’s ultra-premium service. A weak economic environment may further shrink the middle class. But, even in bad times, more wealth is flowing towards the top.
Finally, how about the risk other insiders (besides Sir Richard Branson) decide to cash out? I talked about this risk back in June. But, so far, other prominent investors (like Palihapitiya) have yet to trim their positions.
The Potential’s Still There With SPCE Stock, But Wait for A Pullback
There’s plenty to work with when it comes to making a bull case for Virgin Galactic stock. Even major risks are countered by other factors working in the company’s favor.
Yet, does this mean you should dive in today, as shares trade near $19 per share? Not so fast! With the risk today’s “too hot to touch” stock market starts to cool, a better entry point may be on the horizon.
Bottom line: Virgin Galactic stocks remain a strong opportunity. But, wait for shares to dip a bit before putting in a buy order.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
