Virgin Galactic Stock Is Overvalued Given the Competition and Long-Term Costs

Virgin Galactic (NYSE:SPCE) stock has shed 20% since reporting its second-quarter results in early August.

Virgin Galactic (SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO.
Source: Christopher Penler /

The dip in SPCE stock is mainly attributable to the delays affecting its commercial revenue service launch.

Though the delay is imperative in meeting the company’s supply constraints, it pushes back commercial service to the second half of 2022.

SPCE stock had an incredible run at the market until the end of February, where it gained over 90%. However, it sold off dramatically after continual delays with its test flight window. The stock now trades at virtually the same price as it did at the start of the year.

SPCE stock certainly has long-term growth catalysts that could make it a solid investment down the road. The main question is, though, whether it’s worth investing at current levels.

The company boasts a market capitalization of over $6.25 billion with its price metrics through the roof.

Throw in the competitive threat from companies such as Blue Origin, and the fact that meaningful revenues are still way off, and you can see why SPCE stock appears overpriced at this point.

Did the Market Overreact?

Virgin Galactic is upgrading its mothership, the VMS Eve, to fly as close to 100 times before it requires major maintenance. However, it will push back commercial operations to late 2022, which has irked investors.

Nevertheless, the investment was crucial for a space tourism company looking to launch as many as 400 times a year.

Furthermore, Virgin  Galactic has also announced increasing ticket prices from $250,000 to a minimum of $450,000. The new prices will be in effect after the first 600 customers have been flown to space and back.

If the plan holds through, the company could double its sales per flight and shrink its costs.

However, it will take a while before the company can take advantage of the improved ticket prices. The first 600 customers need to be flown first, which would require roughly 100 flights.

Moreover, it can’t begin its operations before the fourth quarter of 2022. Virgin Galactic is expected to fly 25-30 times in 2023. Its cadence could increase significantly once it adds its “Delta” spaceplane to its existing VSS Unity and VSS Imagine.

Even then, it will be early to mid-2025 before it could potentially complete its first 100 flights.

Virgin Galactic Versus Blue Origin

Similar to Virgin Galactic, the Jeff Bezos-led space company Blue Origin has had a breakthrough year as well.

It completed its first human flight back in July and putting its competition on notice. However, Blue Origin has a vision beyond suborbital space tourism.

Jeff Bezos stated that “The architecture and the technology we have chosen is complete overkill for a suborbital tourism mission.”

It will be focusing on its long-term plan for the development of space colonies.

However, space tourism remains a key factor for Blue Origin in gauging its success in the coming years.

It all boils down to the company’s ability to scale its services cost-effectively and continue to innovate.

Gaining operating leverage will be key for both companies in establishing their dominance in the market. Virgin Galactic aims to make space tourism more accessible, and the key is to drive prices down through operational leverage.

We know that Virgin Galactic’s ticket price is $250,000 and has reservations from 600 customers.

Blue Origin has also sold $100 million worth of tickets as pre-orders. However, the ticket price is unknown.

Bottom Line on SPCE Stock

SPCE stock had been on a roll earlier in the year but since then has moved sluggishly. It still trades at lofty price levels, though, which seems unjustified at this point.

It does have long-term growth drivers, which could push the pace for its business and its stock. However, the competition from Blue Origin, Space X and other companies in the sphere is a major threat to its supremacy.

Moreover, its ability to gain operating leverage and scalability is uncertain at this stage. Hence, SPCE stock is unattractive at current levels.

On the date of publication, Muslim Farooque 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 Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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