There’s no question that Virgin Galactic (NYSE:SPCE) shareholders entered the holiday season in good spirits. Up 51% in November, SPCE stock returned to $30 for only the second time in its brief history as a public company.
To keep the momentum going, the SPCE bulls are searching for anything to hang their hats on — except, of course, revenues and profits — so why not get behind its pilots’ snazzy new spacesuits?
Image is everything.
Ok, it might be a bit of a stretch to think a blue-and-black jumpsuit is worth more than a few pennies to its share price. Still, the reality is that Virgin Galactic is meant to be a commercial enterprise, and a profitable one at that, so the details count, even those as minute as uniforms.
In business, unlike life, it does pay to sweat the small stuff, especially when you operate a business as potentially dangerous as air flight, space, or otherwise.
What the Details Signify?
When Virgin Galactic hired former Disney (NYSE:DIS) executive Michael Colglazier as the chief executive officer in July, I called it a confident move. In fact, the hiring of the former employee of Mickey Mouse and company pushed its stock 35% higher in a single week. Investors like moves that demonstrate progress and big-picture thinking.
Hiring an executive from one of the world’s finest entertainment companies is no small achievement for a company with zero revenues and lots of red ink.
Colglazier had more than three decades at Disney, and even though the novel coronavirus put a massive hole in the parks business that he ran and likely meant future pain for the division as Disney committed more of its resources to video streaming, the severance package would have been more than enough for the 52-year-old to live on for the rest of his natural life.
Between Social Capital’s Chamath Palihapitiya, the chairman of Virgin Galactic, and Richard Branson lending his vision for space flight, the pull was too difficult to resist.
Colglazier’s hiring was meant to be a one-plus-one equals-three move where he would handle the stuff on the ground like customer experience, ticket sales, marketing, etc. At the same time, former CEO George Whitesides can do the technical stuff.
“I’m really confident that he’s going to create an amazing customer experience for our future astronauts,” Palihapitiya said in July. “We’ve all talked about how we can create an incredible experience not just for the astronauts but everybody that comes to Spaceport America. I think Michael understands how to do that.”
So, it’s only natural that uniforms would be a high priority for both Colglazier and Whitesides because they represent Virgin Galactic and what it’s all about. Uniforms are a big part of the Disney Parks operation and they’ll likely remain an important part of the Virgin Galactic operation under Colglazier.
“As soon as you step into the suit, you immediately get a sense of the significance of our mission,” chief pilot Dave Mackay said in its press release. “I’m very much looking forward to wearing my own spacesuit during New Mexico’s first human spaceflight later this month and then many times in the future as we share the wonder of space with our future astronauts.”
The spacesuit represents more than just a large piece of cloth as the two-pilot, six-passenger SpaceShipTwo hopefully takes off for its third suborbital crewed spaceflight on Dec. 11 or sometime shortly thereafter.
It’s a big deal and investors know it.
How High Can SPCE Stock Fly?
Corny as it sounds, the sky’s the limit.
In my last article about Virgin Galactic, I discussed how the analysts were warming to SPCE stock, which would have a big effect on its future share price. It’s just the way it is. At the time (early October), it was trading around $21, then fell into the teens before rebounding in November and December.
“That’s why in my last article about SPCE, I called it a long-term buy. Sometimes, the best investments defy traditional valuation standards. Virgin Galactic is one of those times,” I wrote on Oct. 6.
In October, seven analysts covered its stock. All seven had a buy rating with an average target price of $25.43. As I write this, a total of nine analysts cover SPCE with eight buy ratings and one hold, and an average target price of $26.78.
Clearly, in the analysts’ eyes, SPCE has gotten a little more expensive because, in October, their target price provided upside; based on a current share price of $33.80, it’s got 21% downside over the next year.
I wouldn’t be concerned about that for a couple of reasons.
First, the only analyst with a hold rating has a $19 target. If it were to fall to $19, especially after a third successful test flight, I believe it would only be temporary because passenger flights are expected to begin in early 2021. Once the first successful commercial flight is in the books, the sky’s the limit.
Secondly, once revenue starts rolling in, it will make it easier for analysts to run their financial projections, leading to further analyst coverage. The two things feed off each other.
However, just because I’m supremely confident about Virgin Galactic’s future does not mean that you should bet the farm on SPCE stock. Far from it.
It is still a very speculative stock. Until it gets on a pathway to profitability, this isn’t an investment for your retirement account. That said, as speculative bets go, it’s one of the most exciting I can think of.
Here’s to Virgin Galactic’s new pilot spacesuits.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.