For better or worse, Virgin Galactic (NYSE:SPCE) is a “Robinhood stock.” Robinhood is a popular online trading app that is known for the idiosyncratic decisions taken by its users. According to the its analytics app, SPCE stock is the 33rd most widely held stock among Robinhood users as of February 2020. But despite this connotation, is the stock actually worth a buy?
Virgin Galactic’s stock is up 61% year-to-date, which is surprising considering how poorly the company has fared in terms of its financial performance recently.
The results of its second quarter are dismal to the say the least, but there is still a lot of optimism surrounding the SPCE stock. Most investors feel that the stock is a speculative play that could provide long-term capital gains in the future.
Let’s take a closer look at the nuts and bolts of Virgin Galactic and see if it’s investment worthy.
Recapping Second Quarter Results
Second-quarter results were worse than expected for Virgin Galactic. It reported a loss of 30 cents per share, whereas analysts expected a loss of 26 cents per share. Apart from that, results were pretty much similar to the first quarter. Perhaps the most worrying sign for the company is its cash position, which is down 14% from the last quarter. Additionally, the accumulated deficit has risen by 50% in the period.
However, it’s tough to say whether earnings matter at this stage, considering how the company doesn’t generate any sales yet. There are a lot of positives, though, as far as the future outlook is concerned for the company. For starters, it’s planning to ramp sales starting in the latter half of the year and early next year by ferrying tourists to the edge of space and back. Therefore, the company is aggressively branching out into hypersonic travel much earlier than expected.
Virgin Galactic expects its first powered test flights in the fall this year following up its successful tests of SpaceShipTwo. The first of these test flights will have NASA payloads and the second test flight will assess the complete customer cabin and hardware, along with the training details.
SPCE stock had jumped in pre-trading when it reported its first-quarter loss in May, and a similar trend has followed in the second quarter, where the stock gained 7%. During the first quarter, the company launched its “One Small Step” initiative, where it booked 400 potential tourists in its flight queue for a sum of $100 million. Now the number has risen by 75% to 700 astronauts. Ticket prices are not yet finalized but are expected to be competitive.
The Impact of Virgin Airlines Bankruptcy
British tycoon Richard Branson’s Virgin Group has hung around through thick and thin. At the conclusion of 2019, his empire was worth over $5.1 billion. However, the novel coronavirus pandemic has been unprecedented in its impact on the travel and hospitality industry. The majority of businesses in the group were exposed to virus-induced shutdowns, but none more so than its airline business in Virgin Atlantic Airways.
I talked about how the future of Virgin’s spaceflight business was heavily linked to the fate of its struggling airline business, but it appears that these observations will not come to pass. Virgin Atlantic filed for Chapter 15 bankruptcy this week in the U.S., which protects U.S. assets of foreign companies undergoing restructuring. The company states that its all part of the plan to restructure its business to keep the airline business solvent.
The $1.5 billion restructuring deal has the support of the majority of its stakeholders. However, it still needs to secure approval from its creditors for the plan to move forward effectively. From May through June, the group has sold over $500 million of Virgin Galactic shares.
Moreover, it has also got onboard a new partner Davidson Kempner Capital Management LP, an investment management firm that is providing $233 million of secured financing. Additionally, the group has also secured $587 million of deferrals from creditors, $522 million of shareholder deferrals and waivers and $783 million raised from existing shareholders. Therefore, it appears that for now, both sister companies are moving in separate directions, and Virgin Galactic can now squarely focus on its activities.
The Final Word on SPCE Stock
Passing judgment on SPCE stock is not straightforward by any means. If you’re are looking for a fundamentally solid stock, then you should probably stay away from it at this point.
Virgin Galactic is a speculative stock that could potentially produce high returns several months down the line. Its price movement has been mainly positive, and since my last article on the stock, it has gained 23.38% in value with 75% of Wall Street analysts believing that the stock is a buy. As such, there is a great deal of optimism surrounding SPCE stock, as investors believe that it could prove successful in the future.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.
