Virgin Galactic (NYSE:SPCE) is falling out of orbit on Thursday, with SPCE stock down more than 12%. The catalyst? News that founder Richard Branson unloaded a $150 million stake in the company.
Should investors really be selling?
It seems that today, Virgin Galactic is the victim of an age-old myth surrounding insider selling. Here is what you actually need to know about the SPCE stock drama, and how to move forward.
Why SPCE Stock Is Falling on Thursday
News hit Wall Street on Thursday that Branson sold his $150 million stake in Virgin Galactic, according to a new filing with the U.S. Securities and Exchange Commission. This stock sale occurred in blocks from April 12 through April 14, and included 5.5 million shares. Investors should also note that Branson sold his shares at a price range of $26.82 to $28.73.
Right away, Virgin Galactic started selling off, and as of this writing, shares are down 12%. Importantly, Branson is not the only high-profile insider to have sold SPCE stock. As Matthew Fox highlighted for Markets Insider, market influencer Chamath Palihapitiya sold off his entire $200 million stake earlier in March 2021.
It seems then that investors are taking the sales by Branson and Palihapitiya to be a sign of bad faith. It does not help that the company already faces challenges, with its share price currently down more than 60% from its all-time high. Although Virgin Galactic has captivated investors with its promise of commercial space tourism, test-flight challenges and the Covid-19 pandemic have also weighed on SPCE stock. Plus, with Jeff Bezos stepping back from Amazon (NASDAQ:AMZN) to focus on his Blue Origin, others on Wall Street are worried about increasing competition.
The bottom line here then is that factoring in other headwinds, news of Branson’s sales are scaring investors. Here is how you should really approach the news.
The Bottom Line on Richard Branson’s Big Sale
Want to know why the big sale by Richard Branson is not really that big of a deal?
Even after unloading those 5.5 million shares, Branson is still one of the largest SPCE stock shareholders, with a stake worth roughly $1.6 billion. Also supporting the bull case on Virgin Galactic is the fact that investors know why he is selling. As legendary investor Peter Lynch once said, insiders sell stock for a wide variety of non-controversial reasons, such as a need for some money to send a kid to college. In the case of Branson, proceeds from his stock sales will help fund some of his other endeavors, including his travel and leisure businesses.
Other experts agree with Lynch, noting that some companies even have regularly scheduled stock sales by insiders. Although there is always the potential for some suspect or even illegal behavior, there is no reason to panic because of what Branson did. The selling we are seeing today is a natural response, but consider your underlying opinion on Virgin Galactic. If you are still bullish on its ability to make commercial space tourism a reality, press on.
The road ahead may not be smooth for Virgin Galactic. It really does need to get its business off the ground and into sub-orbit once and for all. But for now, cool your jets.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.
