Virgin Galactic (NASDAQ:SPCE) is in the limelight for all the wrong reasons. For the week ending Dec. 17, SPCE stock shed 20.76%, extending its decline from its 52-week to 40%.
Devotees of the space tourism stock know that the primary reason for this spate of weakness is the aborted launch last weekend, which the company is attributing to a faulty computer connection.
The optimistic and perhaps realistic view on the matter is that nearly all emerging growth companies have hiccups, particularly in the early innings, and bumps on the road don’t end derailing the truly legendary stocks.
The pessimistic and no less credible view is that this was Virgin Galactic’s first test flight in 22 months and it didn’t go so well. For a company that’s been trying to get to the final frontier for a decade, the failures take on added weight because the company is now public, meaning investors are right to scrutinize and demand more than hope, plans and potential.
On the bright side, no one was hurt in last weekend’s botched flight and the company has a couple more cracks at it lined up for early next year. If history repeats, SPCE stock could rally into those events, but the company would do well to start showing some investors some success in terms of getting to space.
SPCE Stock Puts the ‘S’ in Speculative
The failed test isn’t the only issue plaguing Vigrin Galactic. Days after that event, Chairman Chamath Palihapitiya, the venture investor that started the special purpose acquisition company (SPAC) that merged with the space outfit, sold 3.8 million shares of SPCE stock, according to a filing with the Securities and Exchange Commission (SEC).
He said he’s still committed and enthusiastic about the future of SPCE and that the sale was made in the essence of liquidity because he has other projects to finance next year – Palihapitiya owns a slew of SPACs – nobly revealing the sale on Twitter in the essence of transparency.
I’m not knocking Palihapitiya, one of the poster boys of blank-check mania. Early SPAC investors often sell parts of their stakes – it’s how they cash in on these transactions – and Palihapitiya trimmed his Virgin Galactic position by just 15%. Still, it’s hard to say any insider reducing his or her position following the failed test flight fosters investor confidence.
Even if an investor moves past the optics here, there’s still a speculative element with Virgin Galactic. The company sold 600 tickets at prices ranging from $200,000 to $250,000, so there’s obvious enthusiasm among the 1% crowd for space travel, but that also means the company needs to execute and get those travelers to space.
Additionally, Virgin doesn’t have this arena to itself. It’s tussling with Blue Origin and SpaceX in a market that could be worth $20 billion or slightly more upon maturity. If one of those companies beats Virgin Galactic to the space punch, downside in the stock could be significant.
What the Future Holds for Virgin Galactic
For now, the get-investors-in-the-door element of the Virgin Galactic thesis is the aforementioned space travel, but as I’ve argued in the past and others are making this point, too, space travel has a limited audience, particularly at the $200,000 to $250,000 price point.
Not to be trite, but space tourism is for rich people that want to brag to other rich people that they’ve been to space. Ah, capitalism. Ain’t it grand?
What should underpin SPCE stock going forward is disrupting traditional air travel, or suborbital flights. In plain English, potentially cutting down a 15-hour flight to two or three hours. Now that would be something and something more accessible to a broader audience.
However, the company hasn’t shown much progress on this front, either. Until that happens, Virgin Galactic is likely encamped in the speculative category.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.