Virgin Galactic Stock Likely to Stay Grounded Along With Its Spacecraft

As Virgin Galactic (NYSE:SPCE) struggles to get its space tourism business off the ground, there continues to be plenty of turbulence for SPCE stock.

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

Shares are up 54% in the past year but are only about 7% higher so far in 2021. And the past few months have not exactly been a smooth ride. After hitting an all-time high of $62.80 in early February, SPCE stock cratered and didn’t bottom out until mid-May at $14.27 — a 77% drop in value.

A quick rebound ensued, and by late June shares had rocketed back to a high of $57.51. Unable to hold that lofty level, SPCE stock turned lower. Today, shares sit about 56% below their June peak.

Big swings like this are likely to scare away some investors and, unfortunately, this volatility is likely to continue for the foreseeable future.

Virgin Galactic Grounded By the FAA

The late-June high for SPCE stock came after Virgin Galactic received approval from the Federal Aviation Administration (FAA) to fly customers into space. On July 11, the company’s founder, billionaire Richard Branson, was launched to the edge of space aboard the VSS Unity over the New Mexico desert.

Investor sentiment quickly waned, though. In August, the company announced it was delaying its commercial launches by four months until at least late summer 2022. And earlier this month, the FAA told Virgin Galactic it could not launch any further flights until the FAA completed an investigation into why the spacecraft carrying Branson veered off course during its descent back to Earth. The move sent the spacecraft outside the air traffic control clearance area.

Virgin Galactic publicly acknowledged that its rocketship dropped below the protected airspace for one minute and 41 seconds, blaiming the deviation on “high-altitude wind.” But it insists no one on board was ever in any danger and has declared the July 11 mission a success.

We’ll see what conclusions the FAA comes to following its investigation into the incident. For the time being, Virgin Galactic is grounded at its desert home base. This is especially unwelcome news following the string of delays and cancelations that has plauged the company over the past 18 months.

Branson Continues to Sell SPCE Stock

Another issue likely rattling investors is the fact that Branson continues to dump shares of SPCE stock.

According to the most recent regulatory filing, Branson sold nearly $300 million worth of Virgin Galactic stock after his July venture into space and as an internal investigation was being conducted into the flight deviation. Eyebrows were raised when it was revealed that the sale of 10.4 million shares made through Virgin Investments, which Branson controls, took place just a few weeks before the FAA said it was grounding Virgin Galactic indefinitely.

It is not the first time Sir Richard has sold SPCE stock either. He also sold $500 million worth of shares in May 2020 and another $150 million in April of this year. Each time, Branson has said he sold the stock to help fund the ongoing operations of Virgin Galactic and his other ventures.

Still in startup mode, Virgin Galactic does not yet generate any revenue. In its most recent financial disclosure, the company reported a $420 million net loss.

That may change once Virgin Galactic’s space flights finally get up and running. The company says more than 600 people have made a down payment on a flight, which are expected to cost $450,000 per person. Virgin Galactic CEO Michael Colglazier has said that each spaceport, once fully operational, should fly 400 flights per year and bring in $1 billion in revenue annually.

SPCE Stock Remains Highly Speculative

There’s no question that Virgin Galactic has lofty ambitions. It wants to become the leading space tourism company in this world and beyond.

But Virgin Galactic is not alone. Branson’s outfit faces stiff competition. Fellow billionaire Jeff Bezos also traveled into space this summer aboard a ship developed by his space company Blue Origin. And Elon Musk’s SpaceX completed its first all-civilian mission this weekend.

A lot still has to go right for Virgin Galactic to succeed in the burgeoning but highly speculative market for commercial space travel. At $450,000 per seat, the price alone puts the venture out of reach for all except the ultra-wealthy. Add in safety concerns, regulatory compliance, a healthy cash burn and the fact that people need to be in tip-top shape to climb aboard a Virgin Galactic spaceship, and the endeavor starts to look light years away from becoming a reality.

Right now, SPCE stock is not a buy.

On the date of publication, Joel Baglole 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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

 


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