There is a building case for investing in Virgin Galactic (NYSE:SPCE) stock soon. The past month has been full of ups and downs for the company as it continues toward its goal of commercializing space flight.
Back in mid-July, Richard Branson and five other Virgin Galactic employees flew 50 miles above the New Mexico desert in the company’s first fully crewed flight to space. That gave Branson bragging rights and a legitimate claim to the milestone of being first to fly his company’s rocket into space.
That milestone puts Virgin Galactic decidedly ahead of Amazon (NASDAQ:AMZN) and Jeff Bezos in its pursuit to make Blue Origin the pre-eminent space tourism company.
That was undoubtedly a high point in the company’s history. Yet, share prices are lower following a series of high-profile sell-offs. That means SPCE stock remains undervalued following its success.
Sell-Offs Represent Opportunity in SPCE Stock
Just a day after Virgin Galactic completed its first fully manned flight into space it then filed to sell $500 million worth of its own shares. The 8% gain in share prices following the test fight success quickly reversed into a 12% decline on the news.
The prospectus accompanying the announcement noted that the proceeds would be used for working capital, capital expenditures, development of the spaceship fleet and infrastructure improvements.
We may also use a portion of our net proceeds to co-develop, acquire or invest in products, technologies or businesses that are complementary to our business. However, we currently have no agreements or commitments to complete any such transaction.
Then, a month later, Branson himself sold an additional $300 million stake of SPCE stock between Aug. 10 and Aug. 12. The proceeds from that sale are slated to be redirected toward Branson’s Virgin Group, which includes travel and leisure businesses particularly hard hit by the pandemic.
That one-two punch has sent shares down to the $25 range. Given the company’s flight success that means an opportunity is afoot.
Growth Industry
Space tourism is still in its nascent stages. But according to multiple outlets it should balloon quickly.
A report from earlier this year forecast 15.2% compound annual growth through 2027. Another such report pegs that CAGR figure at 17.15% for the decade between 2021 and 2031.
Whether the forecasts are accurate matters not, the thrust of the information is clear: space tourism is growing and will continue to grow.
That means that investors who get in now could reap massive rewards. That’s the nature of growth stock investing. It’s certainly risky. But SPCE stock is in prime position given that Virgin Galactic reached the fully manned flight milestone first.
I am a proponent of the idea that investors must consider financial statements even in nascent companies in growth industries. So, Virgin Galactic deserves the same treatment.
Financial Status
The company makes almost nothing in sales currently. It only registered any revenue at all in the second quarter of this year. The $571,000 it recorded in Q2 was the same amount it recorded in the first half of the year.
The company did decrease its net loss in the first half of this year, though. That loss amounted to $223.726 million, down from $448.763 million in the first half of 2020. The optimistic view then is that Virgin Galactic is operating much better and has reached a milestone in space tourism.
That makes it worthwhile given currently low prices. It’s a gamble for sure. But I compare space tourism to another growth industry: Cannabis.
It’s hard to see how cannabis companies will become profitable soon. But with flights that cost $400,000 to $500,000, it is much easier to see why investors like the growth in space tourism.
On the date of publication, Alex Sirois 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.
