Virgin Galactic’s (NYSE:SPCE) slumped a little over 17% on Monday, marking one of its biggest declines since becoming a publicly traded company. SPCE stock had been blasting off prior to this week, but news of an aborted test flight caused traders to re-evaluate their positions.
To be fair, SPCE stock is still trading where it was in November. However, a 17% loss in one day stings, regardless of the broader context. And the selloff continued on Tuesday as well. This being the case, Virgin Galactic is now at a crossroads.
Does this news validate the bearish claim that the company is more hype than substance? Or will SPCE be able to overcome this misstep and resume its upward trajectory?
What Happened to SPCE Stock this Past Weekend?
Virgin Galactic intended to send a vehicle to space over the weekend. This mission had numerous goals. For one, it was meant to demonstrate safety and airworthiness. It was also supposed deliver goods for NASA and help secure the company’s commercial flight licenses. However, Virgin Galactic had to abort the mission when a computer controlling a rocket motor failed to perform as expected.
There’s no sugarcoating it — this was a key mission for Virgin Galactic. Not only for scientific reasons, but also to move the company’s business plan forward. Right now, SPCE really needs a successful flight to keep its timeline advancing toward larger-scale revenue-generating operations.
But now things will be delayed once again. Virgin Galactic had already been forced to bump this flight back from November due to Covid-19 constraints. So, the timeline is definitely slipping a bit here between these various issues.
The good news, though, is that no one was harmed from anything during the mission’s failure. As the company pointed out on Twitter, “[The] flight landed beautifully, with pilots, planes, and spaceship safe, secure, and in excellent shape — the foundation of every successful mission!”
So, while it’s regrettable that the flight did not reach space, there was a plus in that it demonstrated Virgin Galactic’s ability to handle unexpected events. In an alternative scenario where the security measures didn’t work and there was a tragedy, we’d be having an entirely different discussion here. Indeed, one of the main risk factors with SPCE stock was always that a shuttle could explode or that their pilots could get injured. Thankfully, this was just a mechanical issue that it caught early.
Virgin Galactic’s Path Forward
While this was a clear setback for SPCE, we should also remember that this is a company with no revenues. Investors shouldn’t have had rosy expectations for it’s near-term results anyway. So, another delay is unfortunate, but hardly a deal-breaker. Even assuming everything ends up working out, Virgin Galactic is a five- or ten-year story, not something that will happen overnight.
With that in mind, it’s also reassuring to see Virgin Galactic’s CEO Michael Colglazier focusing on the long term. Addressing this weekend’s events, Colglazier honed in on safety:
“When I became CEO, I was briefed on the safety engineering of our Spaceflight System, which is purposely designed to enable our pilots to safely glide back to the Spaceport at any point during the flight profile. Seeing firsthand how our pilots brought Unity in for a picture perfect landing after an off-nominal condition confirmed this approach. I am even more confident that this is the level of safety that consumers will want and will be expecting from us.”
This is exactly the right tone from leadership. In fact, this is probably part of why Virgin Galactic selected Colglazier to be its CEO in the first place. When you bring in a longtime Disney (NYSE:DIS) executive to run your company, you know you’re going to get 100% professionalism. It’s in Disney’s DNA to make customers feel safe and cared for.
There are so many tech CEOs that would brush off a mishap like this. However, Colglazier showed an appreciation for the human aspect of this scuttled launch and, in the process, reassured the shareholders of SPCE stock.
The Verdict
This past weekend’s failed test flight is a gut check for SPCE stock investors. So, do you have the conviction and patience to ride out what is sure to be a bumpy journey? If you don’t, this is a good opportunity to reconsider your risk tolerance. Because, let’s be clear, commercializing space flight — an entirely new human frontier — is an extraordinary effort. It’d be crazy to think that Virgin Galactic, SpaceX, or anyone else is going to accomplish it without occasional disappointments.
But so far, Virgin Galactic’s handling of this mechanical failure has been on point. As long as the company uses the event as a chance to demonstrate its fail-safe systems and reassure future customers, this can be a positive.
Virgin Galactic still has a ton to prove. But for now, we should still give SPCE stock the benefit of the doubt.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
