The shares of Virgin Galactic (NASDAQ:SPCE) stock have been on a steep trajectory lately. Since late October, they have nearly doubled, including SPCE stock’s 20% surge on Jan. 14. The market capitalization is at $7.13 billion after a 7.9% pullback on Friday.
The latest catalyst? Well, Ark Investment Management has filed the necessarily papers with the Securities and Exchange Commission (SEC) to launch the ARK Space Exploration ETF (exchange-traded fund). This would certainly provide more demand for the sector.
And yes, it seems like a good bet that SPCE stock will be included in the index. Keep in mind that it is the only publicly traded pure-play in the space market. After all, the incumbent players in the space market are large defense contractors like Boeing (NYSE:BA), Northrop Grumman (NYSE:NOC) and Maxar Technologies (NYSE:MAXR), which is working with NASA on the new lunar Gateway spacecraft.
OK, then what else can we expect from Virgin Galactic? Will the shares continue to gain? Or might there be a pullback?
Let’s take a look.
Unique Play On Space
The origins of Virgin Galactic go back to 2004. Co-founder Sir Richard Branson had the inspiration that space could be the next frontier for tourism.
But making this a reality has not been easy. The company has had to raise substantial amounts of capital to build its rocket systems and infrastructure. There have also been several tragic accidents. For example, in 2014, an experimental test flight crashed and killed one pilot and severely injured another one.
Yet Virgin Galactic has been able to bolster its safety systems. There have also been various innovations, such as the development of a sophisticated propulsion technology as well as the development of a vertically integrated platform that allows for improved quality control.
So how does a space trip work for Virgin Galactic? First of all, there are three days of training for the passengers at Spaceport America. After this, the SpaceShipTwo takes flight and reaches an altitude of about 50,000 feet. The WhiteKnightTwo carrier craft will then be released and glide in space. And yes, the passengers will experience a few minutes of weightlessness and see majestic views of planet earth.
In terms of the market size, it does look like it could be substantial. Even though the price tag for a flight is anywhere from $200,000 to $250,000, there are many people who have the financial means for this. Based on research from Credit Suisse (NYSE:CS), there are roughly 2 million people across the globe with net worth of over $10 million. And according to a study from UBS (NYSE:UBS), the spending on space tourism could reach $38 billion by 2030.
But there are other business opportunities for Virgin Galactic. One is to provide services for NASA. Next, the jet propulsion system could be a source of licensing revenues.
Bottom Line On SPCE Stock
To be sure, SPCE stock investors had some concerns last month when a botched test flight sank the shares. Now in mid-December, Virgin Galactic had a problem with a test flight. There was a lost connection with the computer for the rocket engine. As a result, the flight was scrubbed.
But the company has since announced a correction. Although, it is still unclear when there will be a flight for passengers.
Now keep in mind that I’ve been a bull on SPCE stock for some time. But this is an investment for those who have a high tolerance for risk. While the market potential is enormous, there remain considerable risks. This is just the nature of space flight, despite the rapid advances in technology.
Besides, with the surge in SPCE stock lately, investors may want to hold off. As we’ve seen since the company has been public, the price can be quite volatile. In other words, it may be worth waiting for a better entry point on SPCE stock.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.