The space tourism company Virgin Galactic Holdings (NYSE:SPCE) had a great start to the year with an announcement of its first test flight. However, the flight never took off and brought SPCE stock down along with it. The stock hit $55 in February 2021 and came crashing down after the test flight was called off. It is trading at a much lower level of $15.63 today and I believe it will dip in the coming weeks.
The stock is under pressure as investors are wondering about the negative impact of the factors that are surrounding the company. It is facing growing competition in the industry and has not generated any revenue. Let’s take a look at why you should avoid SPCE stock.
SPCE Stock: Poor fundamentals
Virgin Galactic reported first quarte rresults recently. The fundamentals aren’t impressive, and the future of the company looks bleak. The company reported a net loss of $130 million and a cash balance of $617 million as of March 31, 2021. The research and development expenses remained constant at $36 compared to $34 the previous year. The cash paid for capital expenditure stood at $1 million as compared to $4 million in the first quarter of 2020.
Virgin Galactic has not incurred major research and development or capital expenditure this year. The number of future astronauts remains 600, which is constant since October 2020. Investors must remember that the company has not generated any revenue yet. It reported an EPS of $0.55, which is much worse than the analyst estimate of $0.27.
The company has been operating over speculation and there is no full-proof business operation we have seen yet. The cash balance is not enough for the company to sustain in the long term. With poor fundamentals, SPCE stock is not going to pick up.
Uncertainty about the test flight
Investors were worried about the commercial flight taking off this year, but the company did not provide any timeline for the next test flight. It stated that the timing for the next flight is being evaluated because of a potential issue found.
The company previously said that the next flight test was scheduled this month and there will be a second test flight with two pilots and a full cabin coming soon. It also shared details about the third and fourth flight, but that is all speculation today.
The manifold delays in test flights have given an opportunity to competitors to come up slowly and they could soon overtake Virgin Galactic. Jeff Bezos plans to launch Blue Origin with a passenger in July and it has accomplished a lot in less time. It has completed multiple test flights and is already auctioning the seat for first space tourism flight. Its first flight is scheduled for July 20.
With SPCE, we see no progress in the test flight and the commercial flights look far away. We cannot speculate when the company will begin to generate revenue and fly tourists into space.
The bottom line on SPCE stock
Investing in SPCE stock could lead to a huge or total loss. This stock is not going up anytime soon. How do you value a company that has no revenue and no progress to show?
If the delays continue, the stock will only crash and come to the ground.
SPCE stock may not go as high as it did in February 2021 and it may not even reach halfway there. There is a lot of uncertainty and speculation surrounding the stock which makes it highly risky. The market was not happy with Q1 results, which led to a dip in the stock.
Steer clear of SPCE stock. There will be a lot of turbulence on this flight.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.
