Shares of Space tourism company Virgin Galactic Holdings (NYSE:SPCE) have taken a hammering in the past few months. SPCE stock is down a massive 38% in the past three months. Several red flags have emerged with the company, including insider selling, test-flight schedule delays and some aggressive moves by its competition. These elements have added to the sizeable risk that its stockholders were already carrying with their investments in the company.
Virgin Galactic was one of the first pure-play space-related stocks to go public. It was listed on the stock market via a reverse merger with special purpose acquisition company (SPAC) Social Capital Hedosophia led by the “King of SPACS,” Chamath Palihapitiya. The stock has been one of the best speculative investments in the market, having shot up to almost $63 per share at one time. However, due to recent setbacks, it has pulled back considerably. Moreover, the implied volatility with the stock is over 80% at this time.
Hence, the risks involved in SPCE stock are up several notches compared to a few months ago.
The competition is heating up nicely in the emerging space tourism sector amidst a challenging time for Virgin. Its rivals are private companies led by two of the most influential entrepreneurs in modern history. The first is Blue Origin, led by Jeff Bezos, and the other is SpaceX, led by Elon Musk.
In April, Blue Origin launched the 15th straight successful launch of its suborbital space rocket called the New Shepard. It included simulated passenger embarking and debarking and would consist of a crew abroad the next time it goes up.
Naturally, passengers will be soon to follow and will lead to the start of commercial operations. NASA recently announced that it would allow SpaceX to carry its astronauts in its new Starship spacecraft. It is a testament to the space agency’s belief in its ability and the quality of its product.
Both SpaceX and Blue Origin have accomplished more testing to date than Virgin. Moreover, Virgin continues to delay its test flight schedule and has now suspended it until May. Virgin appears to be losing its clout in the sector, resulting in a sizeable hit to its potential revenues.
It would be fair to say that the success of SPCE stock is primarily attributable to the positive investor sentiment surrounding it. However, when there are constant setbacks, then that sentiment is bound to be shaken. The delayed test flight schedule essentially means that its commercialization phase will continue to slide back. Perhaps the biggest area of concern for its investors is the insider selling that has taken place in the past few months.
Chamath Palihapitiya sold his entire personal stake in the company. He sold close to 3.8 million shares in December and another 6.2 million in March. Though he indirectly owns 15.8 million shares of the company, the colossal unloading of the stock raises questions about Virgin’s potential.
More importantly, Virgins founder billionaire Richard Branson sold more than $150 million worth of the company’s stock recently. He sold 5.58 million shares according to a regulatory filing with prices ranging from $26.85 to $28.73. The act of two insiders shedding shares of the company within a couple of months poses serious questions about Virgin’s long-term potential.
The Bottom Line on SPCE Stock
Virgin Galactic had an incredible run following its SPAC deal, and its developments looked promising. However, it has failed to achieve its stated goals, which raises eyebrows over the viability of its business model. Moreover, the competition is pushing ahead, led by two individuals who treat space as a passion project. Finally, insider selling suggests that even the internal stakeholders are worried about the future. Avoid SPCE stock for now, or sell your holdings.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.