Outer space is exciting for everyone and Virgin Galactic (NYSE:SPCE) gave us hopes about being able to fly into space. SPCE stock performed well in 2020 and was soaring high earlier this year.
But another round of test flight cancellations and delays pulled the stock down. I was bullish about the stock before the scheduled test flight but my opinion has changed with time.
The stock has gained about 24% year to date and is trading at $30 currently. It hit a high of $60 in February but has shown volatility over the last month.
I would avoid the stock until we see some real action from the company. For now, there is not much to pin our hopes on. With that in mind, let us go through the investment case for SPCE stock.
SPCE Stock Looks Overvalued
First, there is no real revenue from the company. It has not manned a single flight and is planning testing activities throughout the year. Until and unless the company’s test flights achieve success, there can be no real possibility of commercial flights. Virgin Galactic plans to have 10 space flights in 2022 and 60 flights in 2023 but for that to happen, it will have to begin somewhere.
How do you value SPCE stock? There are no flights, no bookings, and no revenue. It is purely driven by speculation. To continue to attract investors, the company will have to generate revenue and prove its worth in the industry.
Will the test flight take off and will it be successful? For now, nobody has an answer for it. Unless the company begins operations, it will not be easy to generate cash. Virgin Galactic reported a net loss of $74 million in Q4 2020. The company has $666 million in cash currently but there are usual early stage business risks associated with it. It is too soon to bank upon the cash balance.
SPCE stock is up and down with test flight announcements and images but unless we see progress, it is not worth parking your money in. It looks like a dream to fly into space and you wouldn’t bet your money solely on dreams. The company needs to prove itself and the high valuation of $7.16 billion.
The Bottom Line
Virgin Galactic recently unveiled the first SpaceShip III as a part of its fleet. It is shiny and sleek with a modular design. The ShapeShip III, VVS Imagine is built to enhance performance in the flight rate and maintenance. Virgin Galactic aims to fly 400 flights per year but the number may decline in the future. With a number as large as 400, a lot is unpredictable.
Paying $30 for SPCE stock looks a bit on the higher side to me. The valuation of the company does not justify the stock price. How do you estimate the value when there are no numbers to consider? There is no revenue, no profit, and not a single flight so far. The stock still has fans and there are analysts who are bullish on the stock but let the company take the first step correctly.
The company does not have strong future prospects until it gets the test flight right. It does manage to remain in the news and it has an impact on the stock movement but for the long term, Virgin Galactic has a lot to prove. SPCE stock has taken investors on a wild ride over the past few months but for now, there is not much hope that the stock will soar.
Hold your horses until you see some real action.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.
