Virgin Galactic (NASDAQ:SPCE) stock benefits from the company being one of the leaders in space tourism, which is a great place to be.
The space race continues to heat up. What was once seen as a sort of burgeoning novelty industry has become viable.
More and more billionaires and celebrities are trying out “space tourism.” This will pave the way soon for ordinary folks to travel into space sooner than you might think as the number and success of these flights bring the ticket price down.
I wrote last May about how Richard Branson’s test flight could become a potential catalyst for the SPCE stock, which rocketed from a low of $15 to a high of $58 in July. An approximately 3x return in a short period of time.
Branson’s flight only lasted a few minutes but as he described it, “The whole thing was magical.”
Livestream footage of Branson and crew experiencing weightlessness for sure further fueled this stock rally. The space flight that day earned Branson his astronaut wings.
Unfortunately just as like the V.S.S. Unity rocket ship that took Branson into space, SPCE stock had to descend as well. In what became a sell-on news trade, SPCE stock failed to break through its 52-week highs.
The stock bounced back strong of that resistance and has been trending downward ever since. Currently SPCE stock is trading at around $20.
So what happened exactly? Is this a crash for SPCE stock or a temporary landing before it starts its accent once again?
Virgin Galactic Fails to Stick the Landing
It is alleged that Branson’s flight did not go as smoothly as thought as there were several key warning signs during the trip. Virgin Galactic responded trying to allay fears of any potential danger in the flight.
“Although the flight’s ultimate trajectory deviated from our initial plan, it was a controlled and intentional flight path that allowed Unity 22 to successfully reach space and land safely at our Spaceport in New Mexico,” Virgin said in a statement.
This didn’t stop the U.S. Federal Aviation Administration (FAA) from opening an investigation. Thankfully they found no major issues and Virgin Galactic is once again cleared to resume space flights.
However despite this “go-ahead” SPCE stock is still receiving a lot of ire from Wall Street Analysts in particular Bank of America (NYSE:BAC). The investment bank recently slapped SPCE stock with a “double downgrade.”
Analysts from the firm have a “sell” rating on SPCE stock and a price target of $25. The primary reason for the downgrade is the lack of short-term catalysts and a change in estimates on the customer travel launch date.
Furthermore, BAC analyst Ronald Epstein slammed company management for its mishandling of disclosures.
“Point blank, in our view, it is unacceptable to have an event during a flight that, per FAA regulations, is considered a mishap and then claim that the mission was a full success,” Epstein wrote. “The old adage, it’s easier to ask for forgiveness than permission, generally is a poor strategy in aviation.”
SPCE Stock Will See Long-Term Gains
So what exactly does this all mean for SPCE stock? In the long run not much. Virgin Galactic has delayed to Q4 2022 the launch of its commercial space tourism service. This was done in order to strengthen the safety profile of its space vehicles.
I’m not particularly worried about this delay. Any improvements to the safety profile of the company’s spacecraft is a good decision as far as I’m concerned.
I am happy that management is confronting this issue head-on.
As I said before, space travel is such a brand new frontier, it is inevitable that the technology needs to be refined and enhanced. These temporary setbacks do not diminish the massive potential of SPCE stock for long-term focused investors.
On the date of publication, Joseph Nograles 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.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.