Virgin Galactic (NYSE:SPCE) stock has had a bumpy ride lately. Of course, this has been the case with other growth stocks, as the markets have come under pressure.
In early February, SPCE stock hit a high of $57. But as of now, the shares are around $29 and the market capitalization is $6.7 billion.
Founded in 2004, Virgin Galactic is focused on space tourism. The mastermind of this company is Sir Richard Branson, who is a legendary entrepreneur with a knack for upending industries. Virgin Galactic might be the most ambitious yet.
With the recent weakness in SPCE stock, might now be a time to consider a purchase? Well, let’s take a look.
Background on the Company
Virgin Galactic has built a fully integrated platform. For instance, the company has developed innovative propulsion systems that allow for higher performance at lower cost. This technology may ultimately be another revenue stream.
As for the space tourism business, Virgin Galactic’s spacecraft will be able to transport people to about 50,000 feet, enabling the craft to glide in space. To do this, the customers will need to take three days of training. Oh, and as for the ticket cost, it is anywhere from $200,000 to $300,000 per person.
The market for space tourism does look large. Let’s face it, there are many rich people in the world who are looking for exciting experiences.
According to research from Credit Suisse (NYSE:CS), there are roughly 2 million people with a net worth of over $10 million. Virgin Galactic has about 600 “Future Astronauts” who already have signed up.
Even with the innovation and heavy investments, Virgin Galactic has suffered from myriad delays. Part of this has been due to the impact of the novel coronavirus. But there is also the fact that space flight is extremely complicated and risky.
For example, during a test flight in December, the rocket motor did not fire because the ignition sequence failed. Fortunately, the pilots were able to have a safe landing.
In light of all this, it should be no surprise that Virgin Galactic recently pushed the testing of flights to May. Because of this, it seems that customers will not be able to have flights until early next year.
This raises a question: Given the challenges, can Virgin Galactic truly scale its operations and get enough revenues to justify the current valuation? It’s really tough to tell. But with the ongoing delays, it is far from a guarantee.
Bottom Line on SPCE Stock
Chamath Palihapitiya, who is a former executive at Facebook (NASDAQ:FB) and a top Silicon Valley venture capitalist, was the person who structured the special purpose acquisition company (SPAC ) for Virgin Galactic.
The success of the deal helped spur the surge in SPACs as a vehicle for red-hot growth companies.
Interestingly enough, Palihapitiya recently sold his personal stake in the company (although, he owns 15.8% of the shares indirectly through Social Capital Hedosophia Holdings).
He wants to make a mega-investment to fight climate change.
Regardless of the reason, the move is definitely a red flag. The huge unloading of shares certainly implies that there is less interest in the potential for SPCE stock.
Now in the near-term, there could easily be gains, so long as the growth-trade gets back on track (growth stocks also look oversold right now). But until there are commercial flights, there may still not be any meaningful catalysts – and this could put cap on SPCE stock gains.
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 founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.