A year has passed since space tourism company Virgin Galactic (NYSE:SPCE) has become public. Over the past year, SPCE stock is up about 270%. Put another way, the proverbial $,1000 invested in the shares in early December 2019 would now be worth about $3,700.
SPCE stock is part of Sir Richard Branson’s Virgin Group. He had previously founded Virgin Atlantic Airways, owned in part by Delta Air Lines (NYSE:DAL). On Nov, 5, the firm released Q3 results. As a pre-revenue company, the Street looks at the milestones reached as opposed to sales or earnings.
CEO Michael Colglazier cited, “During the quarter we made good progress completing the final steps to prepare for VSS Unity’s first rocket powered test flight from Spaceport America this November. This will be the first-ever human spaceflight conducted from New Mexico.” Since then the stock has had a strong run up and is currently around $27.
Today, we discuss how investors can participate in this emerging sector as Virgin Galactic prepares for its next test flight. If you are not yet a shareholder in SPCE stock, you may regard short-term declines toward $25 or even below as opportunity to invest in Virgin Galactic for the long-run.
Space Travel Has The Momentum
Virgin Galactic went public via reverse merger with a special purpose acquisition company (SPAC). 2020 has been the year when investor interest in SPACs took a dramatic uptick. In fact, in October, a new exchange-traded fund (ETF), namely the Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK) started trading. In a matter of two months, the fund is up over 5%.
Meanwhile, the space industry has also been gathering momentum. Earlier in November, SpaceX, the space company founded by Tesla’s (NASDAQ:TSLA) Elon Musk, as well as NASA, were in the news. Its Falcon 9 rocket “propelled” Crew Dragon spacecraft “Resilience” to orbit. Furthermore, there is another space company, namely Blue Origin, to remember. Jeff Bezos, CEO of Amazon (NASDAQ:AMZN) personally funds its operations.
Maharaj Vijay Reddy of the University of West London, U.K. highlights, “Space tourism or commercial space travel will revolutionise the future of the global aviation industry… Space tourism is expected to revolutionise the lifestyle, travel patterns and future settlements of humanity though it may presently look simply like the mere opening of space for recreation.”
According to UBS (NYSE:UBS), “Space tourism will be a $3 billion market by 2030… [I]n a decade, high speed travel via outer space will represent an annual market of at least $20 billion and compete with long-distance airline flights.”
Thus, buy-and-hold investors are potentially correct to get excited about the prospects for the space industry. However, it is important to remember that it will be many quarters before SPCE stock records real revenue and earnings. Only after a number of successful test flights, the company could start commercial operations. Paying customer would eventually mean revenue and maybe profits.
Bottom Line on SPCE stock
The space industry in the U.S. is likely to go through a fast expansion stage. The Street watches initiatives from Virgin Galactic, SpaceX, and Blue Origin closely. Of the three businesses, SPCE stock is currently the only one that offers retail investors an investment route into space.
Yet the shares have gone up significantly this year, especially in November. As a result, there is likely to be short-term profit taking. SPCE stock could easily go below $25, toward $22.5, a level that would offer a better margin of safety.
Are you currently a shareholder? Then you may also consider protecting some of your paper profits with a covered call strategy. For example, an ATM covered call that expires on January would decrease portfolio volatility and offer some downside protection.
Those market participants who are not ready to commit capital into SPCE stock could consider buying an ETF that has Virgin Galactic as a holding, too. Examples of such funds would include the ARK Autonomous Technology & Robotics ETF (NYSE:ARKQ), the Procure Space ETF (NASDAQ:UFO), the SPDR S&P Aerospace & Defense ETF (NYSEARCA:XAR), or the SPDR S&P Kensho Final Frontiers ETF (NYSEARCA:ROKT).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.