Virgin Galactic (NYSE:SPCE) is a speculative investment on its best day. And recently, SPCE stock showed exactly why investors have to be very careful. On October 20, shares jumped nearly 1% on what Barron’s reported appeared to be a bullish call by an analyst.
The analyst in question, Jim Chanos of Kynikos Associates, gave remarks at an investor conference which suggested he was bullish about the space sector.
However, the very next day CNBC sent a tweet that confirmed Chanos was, in fact, joking about his interest in SPCE stock.
The stock has since fallen over 23%
Since there seems to be some confusion in the markets, Jim Chanos tells me he was JOKING when talking "positively" about space-related companies, which may be moving on his perceived bullish comments. It was a joke, folks. Back to your regularly scheduled trading…
— Scott Wapner (@ScottWapnerCNBC) October 20, 2020
Putting aside the question of market manipulation, this is just another example of why it’s important for investors to understand what they’re investing in when it comes to Virgin Galactic. The stock is sexy, but that doesn’t make it right for your portfolio.
Having analysts give investors a dash of false hope encourages reckless speculation.
Did Virgin Galactic Pass the Test?
Earlier this year, Virgin Galactic had announced plans to do their next, and presumably final, flight test this fall. That was another reason that SPCE stock was soaring in late October. However, it appears investors will have to wait just a bit longer. The most recent flight test of the company’s VSS Unity spaceplane was not what analysts were expecting.
To be fair, the flight was a success. Virgin Galactic announced that its VME Eve “mothership” completed a successful flight test. The VMS Eve is the ship that is needed to launch the VSS Unity into suborbital space. So if you’re a true believer, this test is not for naught.
It could, however, be viewed as another example of “extend and pretend.” Virgin Galactic says it remains on schedule to launch their next FCC-approved flight test yet this fall. So perhaps investors will have a bullish announcement prior to the holidays.
But until they do, it’s fair to be skeptical about when the company will begin commercial operations and, perhaps more importantly, generating revenue.
Is Suborbital Flight Really the Goal?
Dana Blankenhorn recently wrote for InvestorPlace about Virgin Galactic’s founder Richard Branson’s propensity for losing focus. Blankenhorn described it as chasing shiny objects.
One alternative for Branson is the company’s Mach 3 space plane that could do transatlantic flight in 90 minutes (limit of 19 passengers). Another option fogging Branson’s mirror is Virgin Orbit, a small satellite that faces many of the same challenges that the flagship product faces.
It would be one thing if the company were pursuing these as add-ons to an already successful program. Right now, it simply appears that Virgin Galactic is trying to take as many shots on goal as they can just in case their upcoming test flights don’t pan out.
SPCE Stock Still Looks Like a Long Shot
I’m not going to mince words. I’ve been outspoken in my bearishness about Virgin Galactic. This is a company that’s been talking about doing suborbital space travel since 2009. And while I agree that it may be closer, you’ll forgive me if I say I’ll believe it when I see it.
I agree with the reasoning behind InvestorPlace’s Matt McCall’s bullish take on SPCE stock. McCall is correct that this is an example where if you wait until Virgin Galactic successfully completes its test flights, you’re getting in too late.
I’m OK with that. Space travel, even if it’s not actual space travel, is a hot topic. And the sector comes with names like Branson, Elon Musk with SpaceX and Amazon (NASDAQ:AMZN) CEO Jeff Bezos’ Blue Origin. There’s an attraction, I get it.
But it doesn’t mean it’s worth your investment dollars.
The company is supposed to be doing their first commercial flight in 2021. I can’t see that happening before a mass-vaccination strategy is in place. Plus, depending on the outcome of the election, the wealthy may not be as keen at spending $250,000 a pop on what amounts to an experience.
And I’ll keep saying this again. Space travel for astronauts is dangerous. For citizens even more so. Virgin Galactic needs to be right every single time.
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 six years. He has been writing for Investor Place since 2019.