Space travel sounds like a Jetson-esque fantasy. In reality, space tourism could be here before we know it. While its success will obviously attract competition, Virgin Galactic (NYSE:SPCE) is the only real pure play on the industry right now. As a result, SPCE stock is one investors should have on their radar.
This is a speculative holding, to be sure. But it’s making such promising progress that it can’t be ignored.
Virgin Galactic is just one to two flights away from completing all of the necessary FAA milestones. The next flight is scheduled for next month. However, if Virgin is successful, the ball could get moving quite rapidly. The company plans to send founder Richard Branson up in the first quarter of 2021, if its next two missions are a success. Following that event, Virgin Galactic hopes to kick off its space tourism program.
To think such an amazing technology and journey is at the cusp of reality is truly incredible. But as investors, we need to look at it from the business perspective, too.
How Big of a Market Is It?
On Sept. 8, UBS analysts launched coverage on SPCE stock, assigning a buy-equivalent rating and a $25 price target. However, it was the analyst commentary that was more eye-catching than the price target.
The analyst said space tourism could grow to be a $38 billion per year industry by the end of this decade.
Granted, nine years is a long time to wait. But it’s not as if it won’t be growing from 2021 through 2029. The fact that an industry could go from (essentially) non-existent to $38 billion per year is remarkable.
Of course, this is just one estimate from one firm, but it underscores just how big of a market Virgin Galactic could soon be dabbling in. If it comes to fruition, everyone will know SPCE stock and what it does.
When the company last reported earnings, Virgin Galactic said it had received over 700 deposits for its One Step Initiative as of July 30. These are customers who have paid their deposit and are now waiting to purchase tickets when the company eventually gets up in the air.
However, I expect that number to increase significantly once Virgin Galactic’s space tourism business gets moving.
Of course, this is all what makes SPCE stock a speculative holding. Without any real revenue at the moment, all we have is hope. While waiting for business to take off is okay, it does create the potential for a lot of volatility in the stock price. That’s as the stock gyrates during market corrections, as no one wants to hold a company with no revenue.
But those dips can be opportunities — plus, no one ever said a spec holding is stable!
Other Catalysts for SPCE Stock
There are other positives for SPCE stock beyond hoping that it can fly Sir Branson in Q1. The first? More opportunity.
The company continues to ink deals with NASA. Earlier this year, Virgin Galactic entered into an agreement with NASA to “facilitate the development of high speed technologies.”
It also entered into an agreement with NASA’s Johnson Space Center to “facilitate commercial participation in human orbital spaceflight to the International Space Station.”
First, a partnership with NASA is no small potatoes. Second, having NASA as an endorsed partner and encouraging space travel should only help bring credibility to Virgin Galactic’s business. This will be important once Virgin is making routine flights with customers.
Second, the development of high-speed technologies could yield serious results. While it’s entirely possible another company ultimately beats Virgin, viable high-speed flight technology could be an entirely different business unit for the company down the road.
Some investors may still find all of this too speculative and that’s okay. Not every stock is a fit for every person.
From a more fundamental position, of course this name is expensive. In fact, SPCE stock seems expensive at virtually any price simply due to its lack of meaningful revenue. It helps that it had about $360 million in cash on the balance sheet as of last quarter with no debt. In August, it raised another $460 million in a secondary offering.
That cash position should help fuel Virgin across the finish line. For now, those looking for a solid speculative holding with the potential for big long-term gains should consider SPCE stock on a dip.
Keep in mind, this stock cleared $40 earlier this year, showing the rocket-like potential it carries.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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