Shares of Virgin Galactic Holdings (NYSE:SPCE), though up 67% year to date, have been all over the place over the past month. SPCE stock recently hit a 52-week high of $42 per share, then fell nearly 20% after unveiling its second-quarter earnings report.
The company reported another quarterly loss and updated investors about the plans for its next test flight. And the company also announced it plans to raise $460 million by selling 20.5 million shares, which didn’t make investors too happy.
Overall, the earnings report wasn’t a huge surprise since the novel coronavirus has significantly slowed the company’s progress. The question is, can we reasonably expect that things will pick up again in the future?
What is the potential payout to investing in Virgin Galactic Holdings? Let’s look at three pros and three cons of buying SPCE stock.
3 Pros of Buying SPCE Stock
Partnership with Rolls Royce: It hasn’t been all bad news for Virgin Galactic Holdings. The company announced a new partnership with Rolls Royce (OTCMKTS:RLLCF) to develop supersonic propulsion technology.
The two companies will be working together to develop an aircraft that can travel at three times the speed of sound. Rolls Royce provided the engines for Concorde, the only civil-certified supersonic aircraft in the world. The new partnership lends additional credibility to SPCE stock.
Solid cash reserves: One of the bright spots of the earnings report is the Virgin Galactic Holdings still has pretty solid cash reserves. The company has $360 million in cash on hand, which is roughly a year and a half worth of reserves.
Test flight program: The company’s test flight program continues to move forward. The company expects its first powered space flight to take place this fall.
And Sir Richard Branson anticipates his first flight will occur in the first quarter of 2021. Commercial flights won’t begin until Branson has taken the first flight himself.
3 Cons of Buying Virgin Galactic
New share sale: For investors, the biggest disappointment came when the company announced a new share sale for $460 million. The company will offer 20.5 million shares, and plan to grant underwriters the option to purchase another 3.07 million. The proceeds from the sale will go towards working capital and other general expenses.
Delayed flights: Virgin Galactic was forced to delay the start of its commercial flights for another year due to the impact of the coronavirus. Chief Space Officer George Whitesides stated, “During the period, our operations were impacted by the Covid-19 pandemic, despite our efforts to minimize disruption.”
Many companies have experienced setbacks due to the pandemic, so this isn’t entirely unexpected. But it’s another blow to investors who were expecting flights to begin this year, and that the company would become profitable in 2021.
No revenue: And finally, the company still isn’t earning any revenue, and it lost 30 cents per share last quarter. And it’s likely that these losses will continue at least through 2021.
Ultimately, SPCE stock is still operating on potential, not promises. The company is not earning any revenue, and it’s still unclear whether it will actually become a profitable business. Investing is risky, but there is the potential for a big payout down the road.
The Bottom Line
The stock could become profitable, but it will likely take much longer than expected. So, if you do choose to invest in SPCE stock, it’s best to keep it a small portion of your diversified portfolio.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
