Sell Into Strength With Virgin Galactic

With shares back above $20 per share, should you dive into Virgin Galactic (NYSE:SPCE) stock? Not so fast! Recent developments, and overall excitement over space exploration companies, may have sent shares higher. But at today’s prices, the risk/return proposition is even less in your favor.

SPCE stock
Source: Tun Pichitanon /

How so? Right now, Virgin is the only way for retail investors to gain exposure to the space exploration megatrend. Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin remain privately held. But if one, or both of them go public, all bets are off.

Given Musk’s social proof via his success with Tesla (NASDAQ:TSLA), many could jump ship and put their chips on SpaceX. And while Bezos (despite being the world’s richest man) doesn’t have Musk-level celebrity status, investor interest could also shift to Blue Origin if it goes publicl. And this is before taking into account that either company could have a greater edge gaining share in this fast-growing industry.

Granted, this competitive risk may be less of an issue right now. Yet, there are other continuing risk factors at play that may convince you not to buy SPCE stock at today’s prices.

With this in mind, selling into today’s strength may be the best call.

Why SPCE Stock Popped in July

From the late spring to early summer, Virgin Galactic shares were basically stuck in neutral. After going parabolic earlier this year, shares cratered during the novel coronavirus sell-off. But, as markets recovered, and “hot stocks” became “hot” again, the space exploration stock partially recovered.

After that, shares tread water between $15 and $20 per share. Investor interest such as that from the Robinhood trading community moved over to EV stocks, bankrupt stocks, and comeback plays like airlines.

Yet, starting in July, shares rallied again. Starting off the month around $16 per share, SPCE stock soared like a rocket to prices above $25 per share, before cooling off a bit. Today, the stock changes hands around $23 per share.

So, what drove this recent rally? Was it game-changing developments? Or, a rising tide effect courtesy of SpaceX? A little from column A, and a little from column B.

In terms of positive developments, Virgin hasn’t been a slouch. As our Matt McCall discussed Jul 24, a bevy of positives helped to move shares higher. But, an indirect benefit from recent SpaceX developments played a role as well. Namely, news that Musk’s space venture wants to raise capital at a $44 billion valuation.

Assigning such a high valuation to SpaceX implies Virgin may be worth a lot more than what it’s valued today. Right now, this company has a market capitalization of $4.8 billion.

While the rising valuation of SpaceX indirectly helps SPCE stock short term, it highlights a long-term risk with this name. If SpaceX, and/or Blue Origin were to go public, Virgin Galactic could lose a lot of its current investor interest.

High Competition from SpaceX, Blue Origin

For now, the respective space ventures from Musk and Bezos remain private. But what if either or both of them decide to go public? With special purpose acquisition company (SPAC) stocks booming, either name would attract big investor interest if they went the same route as Virgin Galactic.

This may not bode well long term for SPCE stock. With more options for retail investors looking to explore the space exploration megatrend, much of the interest pushing up shares today could cool. In other words, shares may have a hard time heading higher in the next few years.

Sure, neither SpaceX nor Blue Origin has even announced intentions to go public. Even if they stay private, both names could threaten the company’s long-term prospects. As this commentator recently discussed, both rivals may be able to beat Virgin on price, allowing them to capture the lion’s share of the market.

Without an edge against these rivals, it’s hard to see the company meeting current sky-high expectations. In short, good reason why shares may head lower over the next few years.

Besides this major competitive risk, other factors should remain top of mind. I listed many of these in my prior SPCE stock write-ups. Cash burn and potential dilutive equity raises remain a top concern. So is the risk of other insiders (besides co-founder Richard Branson) selling part or all of their positions.

Bottom Line on SPCE Stock

I concede Virgin Galactic continues to have significant potential. Even if rivals like SpaceX and Blue Origin dominate the market, the company could potentially build a profitable business, given space exploration could be a $20 billion industry by 2030.

But, at today’s prices, and after the epic rally in July, risk/return may no longer be in your favor. If you own SPCE stock, sell into strength. Otherwise, wait for an additional pullback.

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.

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