A trip to space may no longer be a distant reality as Virgin Galactic (NYSE:SPCE) hopes to take its first public flight outside the earth’s orbit this year. The company was not successful in its last three test attempts, but SPCE stock rallied on news that a test flight will happen in February.
Adding to this momentum, SPCE was caught up in one of the WallStreetBets trading frenzies, which pushed its share price up even higher.
While the company’s mission is very specific, there is massive earning potential when the company is successful in its endeavor. With numerous tailwinds ahead, SPCE stock is a buy in my book.
Spaceflight Hopes and SPCE Stock
Although 2020 was a tough year for travel and tourism, the same cannot be said for space travel. Shares of Virgin Galactic, the spaceflight company founded by Richard Branson, were up 87% in January on news that the company will initiate a test flight later this month.
Following a series of failed test flights, Virgin Galactic is now confident that it will be able to take customers to space this year. Leonardo Di Caprio and Justin Bieber will among the first passengers.
In any case, powering an aircraft to space is by no means an easy task. This is a major reason the company’s stock is pricey at its current revenue levels. With a market value of $12 billion, Virgin Galactic doesn’t earn enough revenue to justify a price of $54.
However, if the company is successful in its mission to space, this could generate some massive gains in the future. The long-term tailwind makes the stock a worthy investment right now.
A second growth-driver for the company is the technology used to power its spacecraft. In addition to space travel, Virgin Galactic has a growth opportunity in commercial air travel as well.
This is because the technology in the spacecraft can also be used to speed up transcontinental flights. This will help reduce the duration of long flights from 12 to 15 hours to just a few hours. If Virgin Galactic is able to integrate its tech into passenger flights, the earnings could add significantly to its bottom line.
Caught up in a Buying Frenzy
As the WallStreetBets saga continues, investors on the now world-famous Reddit platform have taken a liking to space travel. While Space X and Virgin Galactic are the two major players in the industry, a recent Space X launch failure led investors to direct their attention toward Virgin Galactic.
Shares of SPCE stock were trading in the $30s in January but this spiked to the $50s later that month. Reddit investors have undoubtedly played a key role in this meteoric rally.
As a consequence, Branson saw his personal wealth increase as well. When shares of Virgin Galactic shot up 21%, Branson’s net worth reached $7.8 billion. Many see this as a swift reversal of fortunes for the company which was seeking a bailout from the U.K. Government for its declining airline business, Virgin Atlantic.
Following Virgin Galactic’s recent rally, analysts have grown cautiously optimistic about the stock. Analyst Adam Jones of Morgan Stanley downgraded the stock from “Buy” to “Hold.” But at the same time, he also increased the price target from $24 to $30.
Jones said that, in addition to the excitement surrounding the test flight later this month, investors should also consider the decline in commercial operations as a result of the pandemic.
The Bottom Line
Although Virgin Galactic’s recent rally was partly fueled by the WallStreetBets, there are still plenty of reasons to remain excited about the stock. For one, the company’s ability to launch a successful mission to space will be a huge milestone in space travel.
This could do wonders for its share price in the coming years. Adding to this is the technological breakthroughs that can be applied to regular airline flights. If this technology is outsourced, Virgin Galactic will have the opportunity to earn revenue from commercial air travel as well.
While the strong run at the start of the year will eventually cool down, the long-term prospects for SPCE stock are still bright.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.
