Following an explosive rally in early 2020 on abundant investor optimism with respect to the space tourism boom, Virgin Galactic (NASDAQ:SPCE) has since retreated. For a while, Virgin Galactic stock settled into a well-defined trading range between $15 and $25, as various positive developments were largely offset by launch delays in the company’s commercial spaceflight operations.
But there’s reason to believe SPCE stock will break out of this trading range in a big way in November.
Even further, there’s reason to believe that this breakout will be the start of a much bigger, much longer uptrend in SPCE stock to new highs. This will all culminate as Virgin Galactic pioneers a new era of exclusive space travel.
This means the time to buy SPCE stock is right now … before this space stock truly takes flight:
Here’s a deeper look.
A Big Short Squeeze Is Coming in Virgin Galactic Stock
When it comes to SPCE stock potentially breaking out in November, it all comes down to two words: short squeeze.
A short squeeze happens when a bunch of investors betting against a stock, are forced to cover their positions when the company reports good news. This leads to tremendous buying pressure on a stock, and tends to push stocks significantly higher in a hurry.
You could get a big short squeeze on SPCE stock in November.
Right now, over 80% of Virgin Galactic’s float is sold short, meaning that four out of every five publicly tradeable shares in the market is betting against the stock. This huge short interest comes ahead of a critical test spaceflight for the company’s SpaceShipTwo in November, which will be the company’s first test spaceflight out of its new Spaceport America facility.
A successful test flight in November could converge on an 80%-plus short interest and spark an enormous short squeeze, the likes of which you only see a few times a year across the whole market.
Of course, this all rests on Virgin Galactic having a successful test spaceflight, which is far from a sure thing because the company is quite literally breaking new ground. But, if that spaceflight does go over smoothly, then you could very easily see SPCE stock roar toward $30 in a hurry in November.
A Strong Growth Roadmap
Zooming out, if Virgin Galactic stock does breakout in November, that will be just the beginning a much longer and bigger uptrend in this space pioneer over the next 10 to 15 years.
Virgin Galactic is pioneering us into a novel era wherein space tourism turns from science fiction concept into tangible reality.
Yes, I’m talking flying people into outer-space and back. Everyone wants to do this, because we are all obsessed with space. It’s the final frontier. The one thing we don’t fully understand. And where there’s mystery, there’s human interest.
According to a 2016 Pew Research poll, about 14% of Americans are at least somewhat likely to spend a sizable amount of money on a trip to space. Almost 50% of Americans are generally interested in space exploration. The divergence between these two numbers will narrow (i.e. that 14% figure will head towards 50%) over the next few years as companies like Virgin Galactic finally turn space tourism into a reality, and space exploration interest turns into action.
So, if Virgin Galactic does one day have an up-and-running space tourism business, that business will be quite large — and very profitable, too, because Virgin Galactic will be able to charge just about whatever they want to charge on tickets, given the lack of competition in this market and the huge pent-up consumer demand.
Of course, that’s a huge “if” — but if anyone is going to do it, it’s going to be Virgin Galactic, because the company has:
- The best-in-breed hardware and technology. Virgin Galactic currently has two space ships, with plans to build another three by 2023. These space ships are the best-of-the-best when it comes to the space tourism category, with the oldest of the group — the VSS Unity — completing the first successful commercial space flight with humans and non-pilot crew.
- A fully loaded balance sheet. As of late June, Virgin Galactic had $360 million in cash on the balance sheet — and the company just raised another $460 million through a secondary offering. Thus, the company today probably has somewhere north of $800 million ready to support continued technology research and innovation.
- An exceptionally talented and diverse management team. The company’s CEO is a former Walt Disney (NYSE:DIS) executive, and the Chief Space Officer was the former Chief of Staff at NASA. Many other executives are NASA alums.
So, connecting all the dots, the space tourism space is going to be huge by the end of the decade, and Virgin Galactic projects as the one of the leaders in that huge space.
Add it all up, and it’s easy to see why SPCE stock could turn a November breakout into a multi-year winning streak.
Huge Fundamentally Supported Upside in SPCE Stock
How high could SPCE stock in the long run?
To the moon, no pun intended.
Virgin Galactic already has two space ships, which management claims are capable of making five trips per month and have seating capacity for up to six persons. Let’s say the company can pump out another 10 ships over the next 10 years, so one per year, giving the company a dozen six-seater space ships by 2030, all of which are making five trips per months.
At an average ticket price of $250,000, that implies $1+ billion in space tourism revenues for the company by the end of the decade. Gross margins will be super high — like around 75% — because of the favorable ticket pricing dynamic outlined earlier, while other ongoing operating expenses should be relatively small since the bulk of expenses lie in creating the aircraft in the first place.
Net net, my numbers suggest that Virgin Galactic’s space tourism business could net $500 million in profits by 2030. A 20-times multiple on that implies a $10 billion market cap.
That’s more than double the current market cap on SPCE stock.
Importantly, that hypothetical $10 billion future valuation doesn’t include any upside from Virgin Galactic’s propulsion technology business — where the company plans to apply its next-gen propulsion technology to the global aviation market to create a new class of hyper-fast planes. The addressable market for that business measures over $200 billion, so it’s not unlikely to think that Virgin Galactic’s propulsion business is worth several billion dollars at scale.
All in all, then, Virgin Galactic appears to be a $15 to 20 billion company in the making — meaning that SPCE stock could soar several hundred percent throughout the next decade.
Bottom Line on SPCE Stock
SPCE stock is a long-term winner, and the stock’s multi-year winning streak could get started in November as a successful test spaceflight sparks an enormous short squeeze.
The investment implication, of course, is obvious.
Buy SPCE stock in October, ahead of that game-changing catalyst, and hold shares for the long haul as Virgin Galactic propels us into a new era of commercial space travel.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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