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The Virgin Galactic Bull Thesis Weakens as Its Founder Dumps Shares

In late June, it was “all systems go” for Virgin Galactic (NYSE:SPCE). Holders of SPCE stock cheered as the company received approval from the Federal Aviation Administration (FAA) to fly customers into space.

A photo of Virgin Galactic founder Richard Branson
Source: Brian Friedman / Shutterstock.com

Not only that, but Virgin Galactic confirmed its May 22 test flight “performed well against all flight objectives.” It achieved a speed of Mach 3 and reached space at an altitude of 55.5 miles.

Yet, it wasn’t long after eccentric billionaire and Virgin Galactic founder Richard Branson had been shot into space on the first-ever commercial space flight that investors’ enthusiasm began to wane. A June pop in SPCE stock was followed by a precipitous drop.

Even though shares rallied Tuesday following positive analyst coverage, some other recent developments could give investors pause.

A Closer Look at SPCE Stock

On two separate occasions in 2021, SPCE shot up to around the $60 level.


The first instance occurred in February. This may have been due in part to the Reddit-driven meme-stock craze that was in full effect in early 2021. Shares rocketed to an all-time high of $62.80 before quickly turning lower. SPCE stock didn’t bottom out until mid-May. It fell below $15 a share, shedding more than 75% of its value.

The sharp sell-off in SPCE stock was followed by a swift rebound. Shares traded back up near the $60 level in late June, as investors cheered the FAA approval. Yet, almost as quickly, they began to unravel again. Even with Tuesday’s pop, SPCE stock closed August more than 50% below its late-June high.

At the same time, Virgin Galactic has trailing 12-month earnings per share of -$1.79, which is not encouraging. What’s more, the path to profitability is far from certain.

Flight Delays and Share Printing

The launch of Branson into space and subsequent FAA approval excited investors. However, everything may not be stellar with Virgin Galactic.

Last month, CEO Michael Colglazier announced the company was delaying its commercial launches by four months until at least late summer 2022. Colglazier cited enhancements being made to mothership VMS Eve and spacecraft VSS Unity as the cause of the new delay.

Apparently, the upgrades to VMS Eve will enable it to fly 100 times between major inspections. No doubt, that’s a vast improvement over the 10 flights previously expected. Yet, while this should be a good thing for the company and investors long term, the latest in a string of delays is sure to frustrate some.

Another source of consternation is Virgin Galactic’s at-the-market $500 million stock offering. In an at-the-market offering, the issuer typically sells newly issued shares at prevailing market prices.

Needless to say (but I’ll say it anyway), SPCE stockholders might not like the potential dilution that could result from this large-scale share issuance.

Finally, you have the recent divesting of millions of shares by Sir Branson himself, which doesn’t exactly instill confidence in SPCE stock.

Branson Cashes Out

Virgin Galactic’s founder and figurehead reportedly sold more than 10 million shares between Aug. 10 and Aug. 12 for nearly $300 million. This followed a $504.5 million stake sale by Branson in May 2020 and a $150.3 million offloading of shares in April 2021.

A spokesperson asserted that the proceeds from the latest sale will be used to support the leisure and travel businesses of Branson’s Virgin Group, as well as to develop new businesses. I imagine that won’t make SPCE stockholders feel any better, though.

And while Jefferies initiated coverage of SPCE stock with a “buy” rating this week, other analysts appear less enthusiastic. Morgan Stanley recently downgraded the stock from “equal weight” to “underweight.” Furthermore, Credit Suisse resumed its coverage of Virgin Galactic with a ho-hum “neutral” rating and a not-so-ambitious price target of $30.

The Bottom Line on SPCE Stock

It’s fine to invest in SPCE stock if you’re bullish on the space tourism market generally and for the long term. Just be aware that Branson recently dumped millions of shares and the company’s ambitious plans have been plagued by a string of delays. Therefore, for the time being, a wait-and-see strategy might be the best way to go.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Article printed from InvestorPlace Media, https://investorplace.com/2021/09/spce-stock-bull-thesis-weakens-as-founder-dumps-shares/.

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