The classic show Star Trek starts with some famous words: “Space, the final frontier.” To me, it’s amazing that within my lifetime human ingenuity is putting space flight and tourism within reach. There are many companies participating in this so-called “space race.” One of these is Virgin Galactic (NYSE:SPCE) and although it’s no longer the only player, SPCE stock should still be considered.
SPCE stock suffered a massive selloff in recent weeks, having lost approximately 69% of its value from all-time highs. As a company with no revenue or profit, the stock is particularly susceptible to greed and the fear cycles of the market.
Apart from the general weakness in speculative stocks, though, the selloff in SPCE stock was also triggered in part by a few high-profile exits. Within a few short weeks of each other, both Richard Branson and Chamath Palihapitiya sold a significant amount of shares. Given the shaky market for speculative stocks, investors took this selloff as a sign of lack of confidence.
I believe, however, that investors are overreacting to this news. Here’s why.
SPCE Stock: Insider Selling Could Be a Buying Opportunity
Insider buying can typically be considered a strong vote of confidence in a stock, as there is usually only one reason why someone buys shares. On the other hand, though, there are many possible reasons for insiders to sell a stock they own.
Reasons such as needing cash, tax-planning, or wanting to diversify are all valid. Moreover, these reasons do not necessarily reflect an opinion about the stock’s price. So, let’s look closer at the recent insider selling of Virgin Galactic.
According to CNBC, Richard Branson sold $150 million worth of SPCE stock at a share price between $26.85 to $28.73. Branson’s stated reason was that his leisure and travel businesses had weakened due to Covid-19. Being the founder of Virgin Group, however, Branson is still tied to a 24% stake in Virgin Galactic and has a very low-cost basis for those shares.
Likewise, Palihapitiya’s reason for selling his 6.2 million shares seems to be relatively innocent, too. Palihapitiya brought Virgin Galactic public via a special purpose acquisition company (SPAC) back in 2019. He also has a similar low-cost basis for his shares. Plus, Palihapitiya indicated needing the liquidity for another investment opportunity — an investment to “help fight climate change,” according to Bloomberg. Palihapitiya sold his personal shares at an average price of $34.32, but is still tied to 15.8 million shares through his investment firm, Social Capital Hedosophia.
These large insider sellers have caused panicked investors to dive out of the exits. But, at the current price of around $19, investors are now getting access to SPCE at an almost 45% discount to Palihapitiya’s selling price.
A Successful Test Flight Could Serve as Potential Catalyst
Discount aside, there’s another reason why the timing of this selloff could work out well for potential investors.
Back in February, Virgin Galactic had to delay its test flight of the VSS Unity due to technical issues caused by “electromagnetic interference.” While that announcement caused a lot of pain for SPCE stock investors, the rescheduled test flight is now fast approaching. The company previously announced the test flight would be scheduled for May, but no specific date was given.
Once the test schedule is back on track, it’s only a matter of time before this stock sees a recovery. Eventually, all of these tests will hopefully conclude in a space-travel experience that’s safe and reliable. Plus, I imagine a massive marketing and PR push will occur once Branson successfully completes a space flight.
Of course, a successful test flight is absolutely critical for SPCE stock — it’s the lynchpin to any and all commercialization efforts. At scale, Virgin Galactic is targeting to fly “400 flights per year, per spaceport.” The company is building its fleet and continuing to move toward commercialization. If it can knock this test flight out of the park, investing in SPCE at this point could prove to be a smart move.
Investor Takeaway on SPCE Stock
Space tourism is an industry in its infancy, yet its total addressable market (TAM) is massive. Apart from the novelty of going into space, high-speed travel via outer space could also disrupt long-distance airline flights. Imagine being able to fly from New York to Shanghai in 39 minutes instead of 15 hours. That’s a real possibility, according to SpaceX. Once confined within the imaginations of science fiction, space travel could soon change the way we travel, even in ways we can’t possibly imagine.
Virgin Galactic is a long-term bet on this industry and this possibility. As such, investors should look at SPCE stock with a 15 to 20 year time horizon.
While that may not be for everyone, those that can invest with a long-term mentality could be handsomely rewarded. So, take this recent insider selling with a grain of salt and consider SPCE stock today.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.