Offering no sense of safety whatsoever, an investment in Virgin Galactic (NYSE:SPCE) has “lotto ticket” written all over it. Long-term SPCE stockholders must truly believe in the space-tourism industry. They also need to have plenty of patience and a high tolerance for volatility.
The price action in SPCE illustrates just how risky the stock is. Yet, with greater risk can come greater rewards. Just don’t get hung up on traditional metrics as Virgin Galactic simply doesn’t measure up on that level.
Like the company’s founder, Sir Richard Branson, SPCE investors must have an unconventional bent and an unwavering vision of the future. If you’re willing to see beyond some glaring red flags, then SPCE might be right up your alley.
A Closer Look at SPCE Stock
The first red flag concerns the price action of SPCE stock. A 52-week range of $6.90 to $42.49 should tell you just how wild and wacky this stock is.
Granted, there was a global pandemic along the way, so some volatility should be expected. Nonetheless, such a wide price range might be too much for some safety-minded investors to handle.
By Aug. 7, Virgin Galactic stock had dipped to $18.25 after touching a short-term peak of $24 and change. It looks like the bears consistently retake control every time the bulls attempt to push the price up.
Is SPCE destined to fall back to $15 every time the bulls try to stage a breakout? That number seems to be the floor, so buying the shares if they hit $15 again might be safer than buying them at the current price.
Is Branson In, or Out?
Virgin Galactic’s eccentric founder is no stranger to publicity. Indeed, he seems to relish attention and press coverage.
It shouldn’t be too surprising, then, that Branson will partake of Virgin Galactic’s maiden voyage. And of course, there will be much fanfare and photo ops galore.
The company claims to have 600 reservations for its commercial passenger flights. These aren’t budget-priced as a seat on a flight will cost $250,000.
This fall, Virgin Galactic “expects to advance to the next phase of its test flight program.” This will allegedly involve two manned flights. Then, “Assuming both flights demonstrate the expected results, Virgin Galactic anticipates Sir Richard Branson’s flight to occur in the first quarter of 2021.”
So Branson’s all in, right? Not so fast. In May, Branson disclosed his intention to sell as much as $504.5 million of his stake in the company. Apparently, he sold part of his Virgin Galactic stake in order to support some of his businesses that were impacted by the global pandemic.
Eyes on the Future
It’s not encouraging that Branson announced that he’s selling so much of his stake in Virgin Galactic. Yet, it’s understandable given the unusual circumstances.
Along with that, investors in SPCE would need to forgive Virgin Galactic’s lack of traditional value metrics. There’s no trailing 12-month price-to-earnings ratio to speak of. And if you’re looking for a dividend payout, look elsewhere.
Moreover, the company generated zero revenues during the second quarter. As of Aug. 4, Virgin Galactic generated less than $200,000 of revenues in 2020 so far.
If you’re into hard math, then Virgin Galactic stock probably won’t impress you very much. This investment is for visionary investors who are prepared to bypass today’s obstacles in favor of a promise-filled future.
Chief Executive Michael Colglazier is clearly on board with Virgin Galactic’s glass-half-full outlook:
“We are making substantial progress across many areas of the company as we continue to focus on our path to commercial launch and the steps we are taking to get there, including conducting our first powered spaceflight from Spaceport America this fall.”
It’s really all or nothing with Virgin Galactic stock, then. If the big launch day turns out to be a dud, the share price likely won’t get off the ground.
The Bottom Line
Not everyone should take a position in Virgin Galactic stock, to be honest. The share price could tank or it could fly into outer space. It all depends on the company’s ability to turn space-tourism dreams into a reality. And with that, I wish them godspeed.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
