While no one would accuse billionaires Richard Branson and Elon Musk of modesty, their ambitions in outer space constitute something of a head scratcher once you get past the ego thing. With Sir Richard’s conquests in music, soft drinks and air travel, you have to wonder whether Virgin Galactic (NYSE:SPCE) is, to quote high-tech parlance, a moonshot. It all raises the obvious question and pun: Will SPCE stock blast off?
The answer, at this point, invites comparisons more to a rollercoaster than a rocket ship. For 2020, SPCE stock is so far up by a third, trading at $15.73 per share. But its tantalizing peak in February was $33.87 — meaning that since then, the stock has lost more than half its value.
So what to make of this space journey, then? History doesn’t tell us much, as Virgin Galactic only started trading on the New York Stock Exchange in October, following the completion of a reverse merger with Chamath Palihapitiya’s venture Social Capital Hedosophia. But with all the movement in 2020 and a new CEO as of July — Michael Colglazier, a former theme park executive at Disney (NYSE:DIS) — the time for a proper countdown to liftoff seems ripe. Assuming there is a liftoff.
SPCE Stock and a Billionaire’s Final Frontier
One new development could push this stock up, up and away. CNBC reported just days ago that Virgin Galactic would launch its first suborbital spaceflight from Spaceport America in New Mexico on Oct. 22. If that test and the next succeed, none other than Sir Richard himself would go up on the first official flight, which would be slated for the first quarter of 2021.
Yes, a smiling Branson in a spacesuit has nothing to do with price-to-earnings or revenue projections. But the publicity value will definitely not hurt the stock — not by a moonshot. Ask Musk, who has made a career of turning showbiz optics into shareholder gold.
Back on Earth, six out of six analyst firms — including Morgan Stanley and UBS Group — call SPCE a buy, setting a consensus price target of $24.80. Should that come to pass, the investor who buys in today would realize in time a 58% profit. Fly me to the moon!
But if targets were trophies, flipping stock would be as easy as flipping a coin. And let’s face it, outer space isn’t the easiest sector to explore. SPCE hopes to capitalize on the unproven market of space tourism while also supporting space science missions.
The Distraction Factor
What’s in it for SPCE stock? Branson? Musk? Certainly a lot of bragging rights, because when you’re a billionaire what else is left? But in Musk’s case, it could be a distraction; you have to wonder how much time he’s spent on SpaceX that should go into things like, hmmm, well, uhh…
Look, I know it sounds unreasonable, but how about some real live batteries at the recent hypefest for Tesla (NASDAQ:TSLA), Battery Day? As a puzzled Wired writer put it, “A prototype never appeared, and it was unclear what the company had actually achieved.”
Could Branson be equally distracted? He’s got his hands in everything from launching an adults-only cruise line to raising $460 million for a new special purpose acquisition company. But he’s been multitasking this way for years and this much can be said of SPCE: It appears on its way to firing up as a commercial business in early 2021.
Thus far, Virgin Galactic has obtained 24 of the 29 FAA milestones required and the company believes it only needs those one or two more flights to complete the rest. Yes, but…
Space travel isn’t hailing a taxi, investors. All it takes is one mishap, near mishap or worse to shut down the whole deal for good. An accident with a Virgin Voyages cruise ship would be terrible, but financial recovery from it would be more than possible. An accident with a Virgin Galactic spaceship would make headlines worldwide and could effectively put the company out of business.
Industry performance precedents? Data on SPCE safety? That. Does. Not. Exist. With zero commercial flights by SPCE, the data is as empty as space itself. But given that grandpa breaking open his 401k piggy bank on a few joyride orbits is perhaps a year away or more, a short-term play isn’t going to kill you, especially since analyst dissent doesn’t exist at this point, either.
SPCE May Be on the Launchpad
Sector upsides cannot be ignored, including the UBS projection that space tourism could grow to a $38 billion per year industry by 2030. Still I would approach Virgin Galactic with caution, as two test flights will not a profitable company make.
Nothing thrills like space travel, right? Maybe the time has arrived for investors to leave behind the rollercoaster for the rocket ride. Just make sure to have an ejection seat and a parachute handy. Because — wait for it — you and your money will boldly go where no man, woman, bull or bear has gone before.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.