Virgin Galactic (NYSE:SPCE) announced that it received approval for a full commercial space launch from the Federal Aviation Administration (FAA). As a result, SPCE stock blasted off, gaining 39% in a single trading day and closing at $55.91.
In the days since, it has lost almost all of its one-day gains. It will open this morning at around $46.
You can look at this from two perspectives.
On the one hand, $50 is a major resistance level on the upside. But, on the other, it’s equally clear that investors remain very engaged with SPCE stock. Up 94% year-to-date (YTD), it’s been a top performer in 2021.
The question is, what should investors do with the fact it struggles to stay in orbit? I’ve got a solution.
The First Solution for SPCE Stock
I don’t think there’s any question that SPCE is a volatile stock.
For example, a quick look at its chart since it went public through a special purpose acquisition company (SPAC) merger in October 2019 shows at least six decent-sized corrections in its share price over less than 24 months as a public company.
If you have an iron-clad stomach that’s able to withstand major volatility, and you’re totally convinced that Richard Branson is the billionaire to capture a big chunk of the commercial space market, you should have been buying during each of these corrections.
For example, between December 2019 to February 2020, it went from $7.14 in early December to $42.49 by mid-February. It then proceeded to fall back to $9.06 within a month’s trading.
Now, I know what you’re thinking: This guy is all hindsight and nothing else. It’s a fair observation.
However, one of my pet hobbies is studying the corrections of public companies. So it’s possible to build a system for buying a volatile stock without resorting to hindsight.
You commit to buying a certain amount every time it loses 10% or more of its value in a week.
In the case of SPCE, it has lost at least 10% on 18 occasions from October 2019 through July 2, 2021. That’s approximately 23% of the time [18 divided by 80 weeks as a public company].
Of the weekly corrections, eight were between 10-20%, while 10 were 20% or more. So, for this article, let’s assume you bought 1 share at the closing price on the final day of each of the losing weeks where it lost 20% or more.
| Week Of “X” | % Correction | Closing Price |
| April 12, 2021 | -20.2% | $23.36 |
| March 1, 2021` | -26.7% | $27.29 |
| Feb. 22, 2021 | -27.3% | $37.23 |
| Dec. 14, 2020 | -25.6% | $23.84 |
| May 11, 2020 | -22.6% | $15.62 |
| March 30, 2020 | -20.7% | $12.19 |
| March 16, 2020 | -23.6% | $11.23 |
| March 9, 2020 | -32.2% | $14.69 |
| Feb. 24, 2020 | -27.4% | $24.60 |
| Nov. 18, 2019 | -21.5% | $7.60 |
Based on the above table, you would have bought 10 shares at an average price of $19.77. That puts you up 127% over 20 months.
Now, I realize you aren’t going to execute such a plan to perfection, primarily because you wouldn’t purchase the shares until the following Monday, meaning you could see a much higher opening once trading resumed for the new week.
This aside, it’s a system, and systems will work if you follow them.
The Bottom Line
The reason SPCE is so volatile is simple. It has no revenue. That will change after Richard Branson’s July 11 flight into space.
It will be the company’s fourth flight with a crew but the first with two pilots and four flight specialists on board.
Other than Branson, other Virgin Galactic employees will also be along for the ride, which is meant to evaluate what the customer experience will be like for “paying” customers in the future.
The company is going to live-stream the flight. I, for one, look forward to watching. If successful, look for real flights in 2022.
In mid-May, I suggested that SPCE was a much better speculative buy under $20 than it was at almost $60 in February. Now trading around $46 but much closer to commercial flights than early in 2021, the risk-to-reward proposition is slightly better.
However, the revenue deficit isn’t changing anytime soon. Tickets might go on sale later this year or early in the new year.
SPCE remains a much better buy under $30 at this point. Even better if you can buy under $20. Knowing this stock’s volatility, it’s almost certain you will get a shot at some point in the next six months.
Every time it rises above $50, it struggles to stay in orbit.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
