You Can Love Virgin Galactic, But Let It Come Down to Earth

Humility can go a long way in the business of writing about stocks. The last time I wrote about Virgin Galactic (NYSE:SPCE) was in early September. At that time SPCE stock was hovering around $17 per share. I thought that was a pretty nice gain based on the fact that the stock was trading for less than $10 earlier in the year.

Virgin Galactic (SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO.
Source: Christopher Penler / Shutterstock.com

I advised patience. Caution. I said investors could wait on SPCE stock.

Now Virgin Galactic is at $33.80, gaining more than 75% over the last 30 days.

It goes to show you that investors want what they want. And in this case they want to buy into the future of space travel. Never mind that the company has delayed its next test flight. OK, OK, this time it was due to Covid-19. It says it will take the test flights in the first quarter of 2021. Really, it will.

I’ll believe it when it happens, but right now I’ll admit it looks like at some point, Virgin Galactic is going to make a go of commercial space tourism. And yes, I’m skeptical. Or maybe I just lack the imagination of having a quarter of a million dollars to burn on the experience of space travel.  I also could be jealous.

Either way, I think it’s actually a good thing that the test flights keep getting delayed. Like the Covid-19 vaccine process, the longer it takes the more confidence will ultimately be engendered. After all, even a billionaire would like to have some assurance that he’ll live to tell of his adventure.

What’s Behind Door No. 2?

But still, one of the reasons that the stock has recovered is that it was awarded a contract for a NASA-run suborbital testing program. On its website, NASA describes the program as one that among other facilitates “…the expansion of space commerce through suborbital testing with industry flight providers.”

Specifically, Virgin Galactic will take certain technologies on its suborbital flights to help NASA determine their usefulness.

It’s not sexy. And there is a question as to how much of the $45 million contract Virgin Galactic will receive. However, it’s revenue that will come in the door. And that’s something that investors haven’t seen a lot of recently.

Not that it matters. SPCE stock is not on the rise because it’s behaving like a boring business. It’s taking a trip to the moon on gossamer wings because investors are trying to catch the next Disney (NYSE:DIS) while it’s still on the launch pad.

And speaking of Disney, that’s where Virgin Galactic’s chief executive officer, Michael Colglazier made his bones. This may be just what investors need. Colglazier knows what it will take to turn the space tourism company from a fairy tale to a strong brand.

But that still doesn’t mean that the company’s gambit will become a profitable venture.

What’s the Real Opportunity for SPCE Stock?

Remember when I said, SPCE stock soared on the announcement of actual revenue? Well, it dropped just as fast when the president of Strategic Wealth Partners, Mark Tepper, excoriated the stock on CNBC’s Trading Nation.

According to Tepper, the stock is a “…pure speculation, pure hype stock.” Tepper wasn’t done and questioned the long-term addressable audience for the company. Albeit from a different angle, Josh Enomoto raised a similar concern in a recent InvestorPlace article.

I want to like SPCE stock. I want to be part of the cool kids who just ignore things like profit and revenue and buy the dream. And to be fair, Virgin Galactic is offering more than a dream. It has a vision and it’s taking action to turn the vision into reality.

But it’s not a vision I’m on board with, particularly at the stock’s current price. However, I’m also aware that I’m in the minority among InvestorPlace writers. So, I’ll just humbly reiterate Larry Sullivan’s advice. Don’t bet money you can’t afford to lose on this one. Because ultimately this could be a failure to launch.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/spce-stock-let-it-come-down-to-earth/.

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