Las Cruces, New Mexico-based space tourism company Virgin Galactic (NYSE:SPCE) represents the cutting edge of the new space economy. Folks who want to participate in this burgeoning industry’s upside can do so by owning shares of SPCE stock.
Be advised, though, that you truly are taking a test flight if you buy and hold SPCE stock. Unlike automakers and airlines, space tourism companies don’t have a long and established history of revenue generation.
In other words, SPCE stock is speculative and Virgin Galactic is experimental in nature. Plus, the stock is prone to corrective phases based on news events.
Indeed, SPCE stockholders experienced a downturn not too long ago. There was disappointing news, but perhaps we can find positive signs and a reason to hold on to your SPCE shares through thick and thin.
A Closer Look at SPCE Stock
Like many other special purpose acquisition company (SPAC) stocks, SPCE stayed near the $10 level for a while. This was back in 2019, before the SPAC deal with shell company Social Capital Hedosophia was finalized.
There was much fanfare surrounding the SPAC deal’s completion. After all, Virgin Galactic’s founder is none other than billionaire Richard Branson, and Social Capital Hedosophia’s founder and CEO is well-known serial entrepreneur Chamath Palihapitiya.
After much anticipation, SPCE stock debuted on the New York Stock Exchange on Oct. 28, 2019. After that, it didn’t take long for the stock to go on a rocket ride. On Feb. 19, the stock achieved an all-time high of $42.49.
A sharp correction followed, and the SPCE stock price couldn’t seem to capture and hold the mid-$30s after that. The bulls did attempt a strong run in early December, but again the sellers took back control of the price action.
SPCE stock was trading near $33 at the session close of Jan. 14, which isn’t too terrible. But this begs the question of what caused the stock to fall in December, and whether this signifies a permanent problem.
Failure to Launch
Even after recording several successful test flights and garnering key contracts with NASA, there are skeptics who doubt Virgin Galactic’s future as a space tourism leader.
The misgivings are somewhat understandable. Virgin Galactic hasn’t actually sent any paying customers out into space yet.
Moreover, in November Virgin Galactic reported a third-quarter loss of 34 cents per share. That’s even worse than Wall Street’s expectation of a loss of 27 cents per share. Also, the company posted zero revenues for that quarter.
Adding fuel to the bearish argument was a failed test flight that took place in December.
As Virgin Galactic described the incident, “The flight did not reach space as we had been planning. After being released from its mothership, the spaceship’s onboard computer that monitors the rocket motor lost connection.”
A Picture-Perfect Landing
For both prospective space flight clients and investors in SPCE stock, the scenario described above might sound scary.
It’s true that this attempt to reach orbit didn’t go as planned. Yet, we can find positives in this unfortunate situation.
At least, Virgin Galactic can say that its safety features appear to be working as intended.
According to the company, the lost computer connection “triggered a fail-safe scenario that intentionally halted ignition of the rocket motor.”
After that, Virgin Galactic’s pilots “flew back to Spaceport America and landed gracefully as usual.” So, that’s a relief.
Looking ahead, Virgin Galactic plans to conduct a repeat of that test flight, to be followed by “another test flight which will include mission specialists in the cabin.” Following that, if all goes according to plan, will be another test flight with Branson aboard.
The Bottom Line
It’s true that there was a major hiccup in Virgin Galactic’s test flight. Yet, this won’t deter the company from conducting more test flights.
Plus, it’s good to know that the flight’s safety features executed as intended. Knowing this, SPCE stock investors can hold their shares and await further – and hopefully positive – developments.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
