Virgin Galactic Holdings (NYSE:SPCE) has been one of the more interesting speculative plays this year. And on a certain level, I understand the allure of SPCE stock. We’ve always been a nation of risk takers. There’s a part of us that wants to make the movies our reality.
But there’s a reason why a movie is a movie. Space travel in the movie presumes that all the bugs have been worked out. That we’ve been traveling in space for years. But that’s not the case. And if there’s one thing we know about our society, we love to litigate.
Aggressive growth investors will be quick to point out that if you wait for a stock to prove itself, you’ve waited too long. But in the case of SPCE stock, rushing in too soon carries a higher-than-usual risk premium.
A Closer Look at SPCE Stock
Investors have been trading SPCE stock on the news. And that news has been mostly good. The company announced in its last earnings call that it had completed 27 out of the 29 test flights it is required to undertake before beginning commercial flights.
That puts the company in position to send founder Sir Richard Branson on its first commercial suborbital space flight. But even that positive news sent the stock lower because the flight was pushed off until the first quarter of 2021 amid delays in testing due to the novel coronavirus.
However, Virgin Galactic just got a very bullish call by Cowen analyst Oliver Chen. Chen initiated his coverage with a $22 price target. He bases his optimism on the idea that once the super rich get a taste of the experience of suborbital flight, they’ll be coming back for more.
It’s a Small World
Virgin Galactic’s new chief executive officer (CEO) Michael Colglazier comes from Disney (NYSE:DIS). It’s a savvy move for founder Sir Richard Branson. Colglazier says that the two companies are both in the business of providing “amazing transformational customer experiences.”
That would fit Chen’s rosy portrait. And it may be true. But the experience that customers have at Disney is not overtly life threatening (insert cynical Covid-19 joke if you must). However to borrow a quote from Jurassic Park, “Yeah, but if the Pirates of the Caribbean breaks down, the pirates don’t eat the tourists.”
And that’s my objection with SPCE stock from a commercial perspective. Putting the clever movie quotes aside, the company has to be right every time. You show me a waiver of liability, and I’ll show you an army of lawyers waiting to shred it. Even if the company wins, space flights will be grounded while the legal battle ensues.
There Is a Case for Virgin Galactic
The company has a partnership with NASA to develop a readiness program for private-sector astronauts who are heading to the International Space Station.
“We are excited to partner with NASA on this private orbital spaceflight program, which will not only allow us to use our spaceflight platform, but also offer our space training infrastructure to NASA and other agencies,” Virgin Galactic chief space officer (CSO) George Whitesides said in the June news release.
To some this may sound like a distinction without a difference. After all, this can still theoretically expose the company to liability. In fact, NASA has talked openly about trying to send Tom Cruise to the International Space Station to film a movie.
But putting that aside, this has all the earmarks of a public-private partnership with NASA that can help pay the bills. As an investor, it’s not as exciting, but it’s something that seems more down to earth.
The Cost of Waiting on SPCE Stock
With a speculative stock such as Virgin Galactic, the extreme sentiment on either side starts to sound a bit like an infomercial. Company X promises to take you, and your well-heeled friends, into suborbital space.
But wait, there’s more. Some day (in the undefined future), you and your friends will be able to spend an evening in our space hotel.
And, of course, there’s the payoff. In the case of SPCE stock, Chen suggests that the stock could go to $50 per share.
Of course, the fine print suggests that the stock might not get there until 2050. But why quibble? What’s the harm in taking a couple of spins at the roulette wheel on the future of space travel?
And the answer is maybe there would be no harm. As Will Ashworth points out, the company is closer than perhaps imagined at achieving its goal of suborbital space flight. And if that goal is achieved, it’s likely that SPCE stock would go to the moon. So why not jump in when the stock price is sitting around a third of that price?
Because it’s not there yet. And like the Apollo 13 mission, failure is an option here and success is very expensive.
You can wait on SPCE stock. Really, you can.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019.