Oct. 28 was a historic day in the trading community. That’s when Virgin Galactic (NYSE:SPCE) became the first publicly traded commercial space tourism company. After a reverse merger with a shell company, SPCE stock was freely available to buy and sell on the New York Stock Exchange.
The daily trading volume on SPCE stock has been huge, but not everyone is a buyer. There are plenty of skeptics out there because Virgin Galactic hasn’t actually sent any clients into space yet.
On the other hand, there have been successful test flights and contracts with NASA. With all of this in mind, it’s difficult to make a decision on SPCE stock. How can we know for sure whether a pre-revenue company is really worth investing in?
To complicate matters even further, a state-level regulator recently disrupted Virgin Galactic’s space-flight timeline. No worries, folks, as we’ll do our best to provide some clarity and answer the billion-dollar question: Can a convincing bull case be built for SPCE stock?
A Closer Look at SPCE Stock
I’ve been covering SPCE on behalf of InvestorPlace for a while now. In fact, I made a bullish call on the stock in September and then again in October.
Since those calls were made, SPCE stock has gone on a roller-coaster ride. Or maybe a round trip would be a better descriptor as SPCE has moved from $23 to $17 and change, and then back up to $23 by Nov. 20.
But then, we’ve seen this movie before, haven’t we? SPCE made similar moves in the past, so this magnitude of volatility ought to be expected.
In other words, this isn’t your father’s or your grandfather’s stock. You won’t get any dividend distributions and there’s no price-to-earnings ratio to help you measure its valuation.
SPCE stock could potentially go to zero, or it could double by the end of 2021. This isn’t the type of stock that anyone should load up on. However, if you truly believe in space tourism as a long-term growth market, then a moderate allocation in SPCE could make sense.
Analysts Call It a ‘Buy’
To help you decide whether SPCE is the type of stock you’d like to own, we can let the financial experts shed some light on the company.
Believe it or not, seven out of eight analysts covering SPCE stock are currently assigning it a “buy” rating. That’s pretty amazing considering Virgin Galactic posted no revenue in its most recent quarter.
Moreover, the company’s stakeholders shouldn’t count on seeing any commercial flights from Virgin Galactic for at least a few months. Nonetheless, analysts at UBS sided with the majority when they initiated their coverage on SPCE stock with a “buy” rating.
Evidently, the UBS analysts expect the space tourism industry to attain $38 billion per year by 2030. Perhaps they’re counting on Virgin Galactic as an early mover in this space (no pun intended).
In reference to Virgin Galactic, UBS specifically cited “life-long brand connection, in addition to an operating model supporting a uniquely high flight-rate.”
A Manageable Setback
UBS’s points are well taken, though not all of the recent news pertaining to Virgin Galactic is positive for the company.
Reportedly, new guidelines from the New Mexico Department of Health have been implemented to inhibit the spread of Covid-19. As a result, Virgin Galactic consulted with government officials and chosen to minimize its operational footprint at facilities in New Mexico.
Consequently, Virgin Galactic’s planned space flight for Nov. 19 to Nov. 23 will be rescheduled. For CEO Michael Colglazier, however, this isn’t the end of the road by any means:
“… we take this pause in stride and will be prepared to resume our pre-flight procedures and announce a new test flight window as soon as we can. Our team members at Virgin Galactic, our Future Astronauts, and our fans around the world remain incredibly excited for our upcoming spaceflight.”
Clearly, this setback is merely a delay in the schedule and shouldn’t be a deal breaker for prospective SPCE stock buyers. New Mexico is only doing what’s best for the community and hasn’t displayed long-term resistance to Virgin Galactic’s space-flight objectives.
The Bottom Line
SPCE stock isn’t necessarily the safest investment, and volatility could certainly persist with this stock.
Nevertheless, the analyst community has taken a shine to SPCE stock and any recent setbacks should be surmountable. Thus, visionary investors in the space tourism industry might consider a moderate position in SPCE shares.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
