For most people, space exploration is a fascinating topic. Many of us have grown up with science fiction movies that spark our curiosity regarding the universe. Therefore, on an elemental level, I can appreciate why investors have clamored over Virgin Galactic (NYSE:SPCE) stock.
It’s not just the concept of taking tourists into space that drives SPCE stock. Rather, over the long run, Virgin Galactic could potentially engineer a space economy and ecosystem.
Naturally, this is a type of narrative that appeals to millennials, at least on surface level. For instance, once viable space flight channels have been established, companies can explore mining resources on asteroids.
Theoretically, such endeavors could unlock billions if not trillions of dollars of wealth. Plus, it wouldn’t harm our environment. After all, nobody gives a rat’s behind about asteroids.
However, this is the pie-in-the-sky narrative for SPCE stock. Back down on Earth, the business of Virgin Galactic is a bit messier, at least as far as millennials are concerned. You see, younger generations of investors care about where they put their money, more so than prior generations. But by that logic, Virgin and millennials are at odds.
Most notably, the company announced plans to develop its high-speed commercial aircraft, one that could fly at three times the speed of sound and whisk business executives or celebrities halfway across the world in mere hours. That sounds wonderful except that such aircraft impose an awfully large environmental footprint.
Plus, the business underlining SPCE stock only serves the extremely privileged. Unless you’ve been living in a bunker for the past several months, you know that social justice and equity is a huge concern among millennials.
SPCE Stock Doesn’t Cater to the New Generation
Another factor that keeps me skeptical about SPCE stock is that younger investors are not predisposed to this kind of investment. Prior to the pandemic, CNBC reported that most millennials are hesitant to invest in the stock market. It’s not hard to see why: this is the generation that has lived their formative years through bubbles, crashes and recessions.
Furthermore, this lingering generational fear is corroborated by other research reports. According to a Washington Post article, an economic crisis that impacts people as teenagers will likely suffer lifetime behavioral shifts. If that’s the case, a speculative investment like SPCE stock – one where the underlying business may not be viable for decades, if ever – just doesn’t appeal.
Granted, the novel coronavirus pandemic at least temporarily changed this narrative. Stuck at home either working remotely or collecting larger-than-usual unemployment checks, many people of all ages chose to day trade. And the collective rush of money into the markets may have sparked a self-fulfilling prophecy.
But if that’s the case, then you would expect SPCE stock to move decisively higher. In this new normal, we’ve seen toxic names like Hertz (NYSE:HTZ) briefly skyrocket for really no good reason. At least Virgin Galactic has cutting edge science backing it. Yet SPCE has been disappointing.
Further, it’s possible that the disconnect between rising equity market valuations and dire economic fractures could come to a head. If so, we could see yet another devastating market crash. For older millennials, that would be a trifecta of pain – the internet bubble bursting, the 2008 financial crisis and the Covid-19 pandemic.
Based on the analysis from the Washington Post, another disaster could permanently derail young investor interest toward SPCE stock.
Serving the Rich Is No Guarantee
Usually, bringing solutions to a wealthy consumer base is ideal for one’s business. If anything, such a company is better insulated from economic downturns than those serving consumers of lesser means.
But just going for the elite class isn’t a guarantee of success. If it were, Concorde flights would still be available. They’re not for the simple reason that demand eventually petered out. Thus, I find Virgin Galactic’s supersonic aircraft confusing. As wealthy consumers voted long ago, such exuberant luxuries just aren’t worth the price.
I can’t imagine that this narrative shifted positively during this pandemic.
But even if Virgin Galactic focused on its space-related endeavors, the timing is off. Millennials are most interested in reliable, purpose-driven and socially aware companies. In my opinion, the company doesn’t hit any of these targets, making SPCE stock a rough bet.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
