Boy, did I take my eye off the rocketship or what? I last wrote about Virgin Galactic (NYSE:SPCE) in mid-May. At the time, SPCE stock was struggling, trading around $17.25.
I suggested that the risk-to-reward of buying at these levels was so much better than when it was trading near $60 in February. In hindsight, we know that the aerospace company’s stock bottomed at $14.27 (52-week low) on May 11, just days earlier. By June 28, it was back up to $57.51.
And then the bottom fell out, gradually falling back into the teens, where it trades today.
Like I said in May, speculative investors ought to be all over SPCE stock. Here’s why.
SPCE Stock Is Priced to Move
Virgin Galactic currently has a market capitalization of $4.34 billion. That’s about 1/24th the market cap of Rivian Automotive (NASDAQ:RIVN), the electric vehicle startup. Yet, Virgin Galactic has $3.2 million in revenue for the nine months leading to Sep. 30, while Rivian has none.
In terms of operating expenses, Virgin Galactic’s were $241.1 million through Sep. 30. Rivian’s were $990 million for the six months leading up to June 30. It expects to generate an operating loss of $750 million in the third quarter at the midpoint of its guidance. That’s $1.74 billion in operating expenses for the first nine months of 2021.
So, this means that Rivian investors are willing to pay $60.48 for each dollar of operating expenses — $105.23 billion divided by $1.74 billion annualized — compared to $18.87 for Virgin Galactic investors.
If I bought Rivian for over $170, I’d be quaking in my boots. However, there is no question from the above two paragraphs that the risk-to-reward proposition skews heavily in SPCE’s favor.
Where Do We Sit Regarding Space Flight?
On Aug. 11, the FAA (Federal Aviation Administration) began an inquiry into the company’s July flight into space with Richard Branson aboard. Branson is one of its largest shareholders despite recent stock sales to fund his other businesses.
The FAA grounded Virgin Galactic’s operations in early September after learning that its SpaceShipTwo vehicle went off course during the July flight and did not report the incident.
However, on Sep. 29, the FAA cleared the company to resume flying space missions, satisfied that the company made the appropriate changes to ensure the situation wouldn’t repeat itself.
On Nov. 8, it announced its Q3 2021 results. The most critical information is that the company is still on track for private astronaut commercial service in the fourth-quarter of 2022. Approximately 700 of the 1,000 early reservations have been sold to date. Those seats will ultimately go for $450,000 each, generating $450 million in revenue for the company.
While it’s not a done deal, a revenue surge is getting closer by the day. And yet, SPCE stock, relative to Rivian, is selling for buttons.
The Bottom Line
It isn’t great optics for Richard Branson to be selling more of his stake in the space flight company — he sold 6% of the company recently for $300 million — as part of the billionaire’s ongoing efforts to save his travel businesses. Since the beginning of the pandemic, Branson has sold more than $1 billion of SPCE stock to right the ship at some of his other companies.
However, Branson remains one of the largest shareholders with a stake worth $600 million or approximately 12%.
CEO Michael Colglazier commented about the company’s future space business during the Q3 2021 press release:
“Demand for space travel is strong, and we’ve been selling seats ahead of the pace we had planned. This demonstrates the incredible market for our product and appreciation for the value of the unique experience we offer. It’s a pivotal time for the Company as we transition from a prototyping space innovator to the global, scaled, commercial operation we are becoming.”
Indeed it is a pivotal time.
In May, I wrote:
“If you can afford to lose 100% of your investment, buying at these prices, or even closer to its 52-week low of $14.21, makes complete investment sense. But don’t put money into this that you can’t afford to lose — retirement funds, college education, food on the table, etc. That’s never a good place to be as an investor.”
The exact words apply today. SPCE stock is an excellent long-term speculative buy.
At the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.