The last time I wrote about Virgin Galactic (NYSE:SPCE) was in mid-February when SPCE stock was flying high, trading several dollars above $50. At the time, I suggested that Virgin Galactic founder Richard Branson’s other investment vehicle — VG Acquisition (NYSE:VGAC) — was a better buy if you were looking for a near-term risk-to-reward proposition.
“At around $54 presently, only those willing to hold for the long-term should consider buying at these prices,” I wrote in February. “If you bought in 2020 for the long haul, I wouldn’t sell. Instead, I would wait for it to correct and then buy more.”
Well, SPCE has corrected and then some.
SPCE Stock and Branson’s Latest Sale
Not only has the space company’s timeline for commercial flights been pushed back into 2022, but Branson continues to sell off Virgin Galactic’s stock. If this weren’t one of the billionaire’s biggest passions, I wouldn’t think twice about the stock sale.
However, Virgin Galactic without Richard Branson is a bit like Disney (NYSE:DIS) without Mickey Mouse: simply unimaginable. The two events have investors worried about the future of the company. Rightfully so.
Is the company losing its visionary leader? For the sake of SPCE stock, the answer’s got to be a resounding no. So far, here’s what we know.
The sale of $150 million of SPCE stock was made over three days in April at prices between $26.41 and $28.91 per share. That’s about 35% higher than current prices. Just as he did in May 2020 when Virgin Group sold $500 million of its holdings in Virgin Galactic to fortify its other leisure holdings, Branson will use the latest proceeds to help get the companies through the pandemic.
At the time of last year’s stock sales, I wondered if the company could succeed without Branson.
“I believe Richard Branson will figure out how to rescue the rest of his empire without giving up his entire investment in Virgin Galactic. If he doesn’t, someone else will likely step into the breach to carry the company over the finish line and into space,” I wrote on June 9, 2020.
“But please don’t buy this stock using your 401(k). It’s too risky for that.”
Nothing’s changed about that last sentence. It is a speculative stock, bar none. However, despite the $150-million sale, Virgin Group is still the largest shareholder with a 24% stake in the company.
I continue to doubt Branson would sell his entire position unless it were essential to save his other companies. And even then, I’m skeptical he would end his pursuit of space travel after more than two decades of trying.
The Delays Are Par for the Course
As for the delay of SpaceShipTwo Unity’s next test flight from February to May to who knows when thanks to the latest technical glitch, investors must remember we’re talking about human beings flying into space. It’s not quite like taking a trip from San Francisco to Los Angeles.
“The path to commercial scale is being bounded by ‘space is hard’ type of realities,” Adam Jonas, an analyst at Morgan Stanley, said in a note to clients.
The analyst still believes Virgin Galactic has tremendous potential. However, the technical issues could push back the company’s ability to generate revenue by a year. For this reason, Jonas has an equal-weight rating and just a $30 price target.
I’m sure once the flight actually takes place and analysts have better insight into the commercialization timeline, target prices and ratings will move more positively.
On May 10, Virgin Galactic delivered first quarter 2021 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $55.9 million, down from $59.5 million in Q4 2020 and $7.7 million less than the analyst estimated loss for the quarter.
At the end of the day, CEO Michael Colglazier is merely trying to manage investor expectations. In March, he was transparent with investors, stating that Virgin Galactic needed a lot more ships if it were going to be ready for commercial flights, and those ships needed to be built so that the turnaround between flights wasn’t so lengthy.
As an investor, I don’t know how much more information you need to make a decision about buying its stock.
- There will be delays.
- Virgin Galactic doesn’t have enough space ships to scale the business.
- The company has no revenue and might not have any until sometime in 2022.
- Richard Branson is still very much involved in the company despite the share sale.
From where I sit, the risk-to-reward proposition for speculative investors is so much more in your favor at $18.64 than it was in February.
If you can afford to lose 100% of your investment, buying at these prices, or even closer to its 52-week low of $14.21, makes complete investment sense.
But don’t put money into this that you can’t afford to lose — retirement funds, college education, food on the table, etc. That’s never a good place to be as an investor.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.