Virgin Galactic Is Now Overvalued and its Failed Flight Test Doesn’t Help

Virgin Galactic (NYSE:SPCE) had a major bobo on Sat., Dec. 12. Its space rocket, VSS Unity, which was dropped from a carrier plane, failed to ignite its rocket motor. To say the least, this does not look good for Virgin Galactic, and SPCE stock could take a hit if this continues to happen.

Virgin Galactic (SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO.

Source: Christopher Penler /

You can see what exactly happened on the YouTube channel NASAspaceflight, which is a private channel not associated with NASA. The drop and release are in about the middle of the 2 hour and 30-minute video.

The VSS Unity space rocket, with two pilots onboard (in full oxygen suits), glided back to the New Mexico Spaceport America safely. You can see in the video that the rocket initially turned on, and then it failed to last more than one second.

To be fair, the company immediately tweeted that they will refit another rocket engine on the VSS Unity. Here is what Virgin Galactic then said, “We have several motors ready at Spaceport America. We will check the vehicle and be back to flight soon.”

What This Means for Virgin Galactic

First of all, this should show everyone that there are a lot of risks involved in this early-stage space tourism company. Even though the company is now getting some revenue from NASA from space tests and data, there is no indication if this test was able to provide any revenue from the failed flight. I highly doubt it.

Second, this was supposed to have been one of three flights prior to the company opening up future flights for paying space tourists. Sir Richard Branson was going to be on the third of these flights.

Now, that whole schedule is going to see a push back. There is no indication of when the next spaceflight will happen. That is a lot of uncertainty.

Moreover, the market does not like uncertainty. Up until Dec. 12, SPCE stock spiked 46% in the past month to a near valuation of $7.5 billion. In fact, in the last six months, it had risen over 121% and 177% year-to-date.

This failure, although not catastrophic, could have a cascading effect on SPCE stock. If the company quickly recovers, gets another rocket motor spliced onto the VSS Unity, and flies it into space, then there might not be an issue.

But one wonders. Isn’t their rocket technology the single most important technology element for Virgin Galactic? It is clearly basic to the company. For example, if there was a gimble problem, or pilot error, or even a release error.

This could clearly have reputation ramifications for Virgin Galactic.

What to Do With SPCE Stock

Since my last article on Virgin Galactic on Nov. 11, a little over a month ago, SPCE stock has skyrocketed 46% from $21.94 to $32.04 as of Dec. 11. At the time, I argued that the stock was worth no more than 31% higher, or $28.75.

Today most analysts have much lower price targets. For example, writes that an average of five analysts’ price targets is $25.25. That represents a potential drop of over 21% from Friday, Dec. 11, when it was at $32.04 per share.

Other surveys of analysts’ targets show the same thing. For example, says the consensus target is $24.74, or 22% lower, and Yahoo! Finance reports an average target of $26.78 from 9 analysts, 16.4% below the price on Dec. 11.

These analysts were taking into various risk factors, one of which is a failure to launch. They realize that the company can end up having significant regulatory issues if it does not perform perfectly.

For example, earlier this year, Boeing (NYSE:BA) had a catastrophic failure during a test flight of its Starliner spacecraft. The booster rocket never got into space orbit around the earth. Although the Starliner spacecraft, which can take humans into space, landed safely, NASA is now having major issues with Boeing, according to the Washington Post.

The same could happen with Virgin Galactic and the FAA, which must certify that the flights into space for tourists will be safe.

Therefore, let the buyer beware with SPCE stock. For most people, looking for a better entry point will now be the best course of action.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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