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Analysts Seem To Love Virgin Galactic, But The Company Still Has To Perform

Virgin Galactic (NYSE:SPCE) has done quite well over the last year. SPCE stock is up over 92% as of midday March 29 to $29.51. In fact, year-to-date, the stock has gained just over 24%. For the stock to continue to do well, the company will have to perform.

Virgin Galactic (SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO.

Source: Christopher Penler / Shutterstock.com

Analysts seem to love SPCE stock, despite its real lack of revenue. As it stands now, the company, which has not made one manned orbital flight, has a $6.9 billion market capitalization.

The company is planning a series of testing activities through the rest of 2021. Then in 2022, it plans to have 10 space flights and up to 60 flights in 2023. By 2024 there will be 120 flights, and 208 are forecasted for 2025.

What Analysts Think

Morgan Stanley has a bull case target price of $70 on SPCE stock, or 137% higher than today. Its “base case” target price of $30, or about where the stock is today.

Truist, another brokerage firm that launched a new research report on Virgin Galactic, believes that next year space tourism demand will significantly exceed supply. That will give the company “pricing leverage and enabling margin accretion as the company scales its operations.”

According to Barron’s magazine, he believes the company will capture 50% of the space tourism industry. He says SPCE stock is worth $50 per share as a result.

A Bank of America analyst says that investors are focusing too much on the short-term delays in the company getting off the ground. He says that the company expects to fly again in May. He likes Virgin Galactic’s long-term activities in space tourism, including a recent contract with the Italian Air Force.

He thinks it is a great time to get in. He says that the “current nascent stages of the company provide investors with a particularly attractive entry point into the stock.”

TipRanks.com says that nine analysts have an average target of $37.67 per share or 27.6% above today’s price. Moreover, Seeking Alpha indicates that eight analysts have an average price target of $38.25, or 29.6% above the price as of March 24. Marketbeat.com says that 11 analysts have a consensus target of $34.64, 17% higher than today.

Where Things Stand

Virgin Galactic reported its earnings on Feb. 25 and its cash flow statement shows that the company burnt through $74 million in Q4 alone. This was part of $250 million in negative free cash flow for 2020.

The problem is the company has just $665 million in cash (before restricted cash) in the bank as of Dec. 31. If it to burns cash at a rate of $294 million from the rate it had during Q4, the cash will run out in two years.  That means that sometime in the next year the company will have to raise more equity or debt. That will be dilutive to the stock or lower its inherent value.

However, assuming cash flow begins to roll in by next year with new space flight operations, the company will be able to replenish its cash outflows. The clock is ticking, so to speak.

What To Do With SPCE Stock

SPEC stock peaked in mid February at over $59 per share. But now the stock is down over 50% from that point and it is tempting to take an initial stake. In fact, that is not a bad way to begin making an investment.

The problem is there are no valuation parameters to look at with SPCE stock. For example, Seeking Alpha says that the forward price-to-sales multiple is a high 116 times.

In other words, for most investors, SPCE stock is basically a speculative play. The company will have to perform and prove to investors that it has a viable space tourism business. Virgin Galactic certainly has the cash to get something serious done. The company has the manpower and expects to be able to start generating revenue within the year. Hopefully that means that the stock will reach the many target prices of the analysts who cover the stock.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/spce-stock-has-analysts-who-love-the-stock-but-operations-have-yet-to-take-off/.

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