Since later October, the chart for Virgin Galactic (NYSE:SPCE) looks like a launch path for rocket. SPCE stock has gone from $17.40 to $33.80 and the market capitalization is now about $7.9 billion.
The company came public about a year ago through a SPAC (Special-Purpose Acquisition Company). This means that it merged into a shell company. And yes, this actually sparked a boom in SPAC offerings.
Yet during this time, SPCE has certainly been a volatile stock. For the past year, the shares have seen a low of $7.85 and a high of $42.49.
But this should not be a surprise. SPCE is a pioneering company, with minimal revenues. There are also the inherent risks of space flight. Keep in mind that the company has had several major accidents – and one that resulted in a death.
Yet the company has made many great strides with its systems and safety. Then again, SPCE has been around for about 16 years and so has the benefit of experience.
So what about SPCE stock now? What can we expect? Well, I think the bull case is still intact. And let’s take a look at three reasons for this:
Barriers To Entry
Since the dawn of the space age in the 1950s, there have only been 576 humans that have traveled above the Earth’s atmosphere into space. But of course, with Virgin Galactic, this experience will be commonplace. Moreover, the company will be one of the few to provide such a unique service. The private space business is mostly for large companies or billionaires like Tesla’s (NASDAQ:TSLA) Elon Musk and Amazon’s (NASDAQ:AMZN) Jeff Bezos.
So far, Virgin Galactic has built two reusable rockets that can carry six passengers each. The space flight involves a few minutes of weightlessness and majestic views of Earth from space.
No doubt, the reason that so few humans have flown into space is that the costs are enormous. But there are also the extensive need for training.
As for Virgin Galactic, it has been able to develop a low cost system. The company has also created a comprehensive integrated platform, which includes investments in proprietary technologies, design, engineering, composites, manufacturing, and high-speed propulsion.
Another key for SPCE stock is the large market opportunity. True, the service is mostly for the so-called 1% of the population. Consider that the fee for a trip is around $200,000 to $250,000 per person (and this may actually go up).
But hey, there are many wealthy people! According to a report from Credit Suisse (NYSE:CS), there are about 2 million people across the globe with net worths of over $10 million. In fact, a study from UBS (NYSE:UBS) estimates that space tourism could hit a staggering $38 billion by 2030.
Note that Virgin Galactic has already seen much traction with reservations for space flights. There are close to 900.
The Virgin Galactic platform has many advantages. As mentioned before, there is a vertically integrated systems. But the company also is considered a leader in propulsion systems. Consider that this technology could be a source of licensing revenues.
Then there is the benefit of the branding. Not only is Virgin Galactic a first mover, but the co-founder is the master of marketing: Sir Richard Branson. Thoughout his storied entrepreneurial career, he has reimagine many businesses, such as airline travel, music, mobile phones, cruises and so on.
The company is also building its platform for scale – which could mean that Virgin Galactic may be a big revenue generator. In the latest earnings call, CEO Michael Colglazier noted: “The next chapter of Virgin Galactic is to use this system to bring thousands and thousands of people to space and deliver our purpose of opening space to change the world for good. At a recent objective, we are embarking on a multi-year effort that will lead to flying not once a month or even once a week, the targets flying 400 flights per year per Spaceport.”
And finally, the company has the financial resources to pursue its ambitious plans. There is currently about $724 million in the bank and Virgin Galactic was able to raised about $440 million the prior quarter.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.