Space tourism pioneer Virgin Galactic (NYSE:SPCE) stock has been in a downward spiral until recently.
Having hit the all-time high of $62.80 in early February, shares slumped to $14.27 in mid-May. It currently hovers around $18, down more than 20% year-to-date (YTD).
Virgin Galactic went public in late 2019 through a reverse merger with the special purpose acquisition company (SPAC), Social Capital Hedosophia.
Initially, SPCE stock has enjoyed an uptrend after the listing, mainly thanks to management setting exciting goals, such as taking individuals to space by 2020. However, the share price has since then plummeted as investors began losing patience.
Nonetheless, the race for space tourism is heating up. Although some experts are still skeptical and believe that the market for individual space tourism will remain limited, others argue commercial space travel could become mainstream within 20 years.
According to recent research on the sub-orbital space tourism market, “The global sub-orbital space tourism market is estimated to reach $396.6 million in 2031, at a compound annual growth rate (CAGR) of 24.46% during the forecast period 2021-2031.”
Meanwhile, other companies have also joined the race. Virgin Galactic is competing with Tesla (NASDAQ:TSLA) CEO Elon Musk’s SpaceX as well as Amazon (NASDAQ:AMZN) founder Jeff Bezos’ Blue Origin to start taking tourists into the orbit.
So far, SpaceX and Blue Origin have flown individuals with no formal space flight training, including the 90-year-old actor William Shatner.
Space travel is a new frontier and the popularization of orbital space tourism appears to be upon us. Therefore, today’s article looks at what might appear on the horizon for SPCE stock. Let’s dive in.
Space Stock Quarterly Results
Virgin Galactic describes itself as a vertically-integrated aerospace company, pioneering in spaceflight for private individuals and researchers. The company also manufactures advanced air and space vehicles.
On Nov. 8, SPCE reported third-quarter financial results. Revenue came in at $2.6 billion. Net loss of $48.4 million translated into a loss of 32 cents per diluted share.
In the prior-year quarter net loss and loss per diluted share were $92 million and 41 cents, respectively. Cash and equivalents ended the quarter with $721 million.
Following the announcement, CEO Michael Colglazier said, “Demand for space travel is strong, and we’ve been selling seats ahead of the pace we had planned,” and added, “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.”
Despite the greater-than-expected loss and increased expenses, SPCE shares trade at a modestly higher level after the release Q3 financials.
That’s mainly thanks to the recent 100 reservations booked at a pricing of $450,000 per seat. So far, 700 seats out of 1,000 have been sold on the “Spacefarer community” for future flights.
Adding SPCE Stock to Portfolios
By traditional fundamental metrics, Virgin Galactic is an extremely overvalued growth stock, but many investors believe it has the potential to eventually catch up with the current valuation.
Therefore, growth investors with a long-term horizon of at least three to five years could consider buying the shares around current levels.
Among 11 analysts polled, Virgin Galactic stock has a “buy” rating. Also, the consensus is for a 12-month median price target of $23, implying about a 10% upside potential from current levels. The 12-month price range currently stands between $15 and $50.
Alternatively, interested readers could consider buying an exchange-traded fund (ETF) that provides exposure to SPCE stock as a holding.
Examples include the Direxion Moonshot Innovators ETF (NYSEARCA:MOON), the Procure Space ETF (NASDAQ:UFO), the SPDR S&P Kensho Final Frontiers ETF (NYSEARCA:ROKT), and the VanEck Social Sentiment ETF (NYSEARCA:BUZZ).
Readers may also want to research other companies that have space-related or aerospace and defense focus as well. Examples would include Aerojet Rocketdyne Holdings (NYSE:AJRD), Astronics (NASDAQ:ATRO), and Heico (NYSE:HEI). Price-to-sales (P/S) ratios for these names are 1.65x, 1x, and 11.58x, respectively.
The Bottom Line
In late September, the US Federal Aviation Administration (FAA) lifted the grounding order on Virgin Galactic that had been put into place after the July publicity flight, Unity 22. It was carrying founder, Sir Richard Branson but the flight deviated from the mandated airspace on the descent.
Having done the real-time mission communications troubleshooting as the agency required, the company is finally allowed to resume space flights with a full FAA license.
Later, on Oct. 14, SPCE announced the delay of commercial spaceflights until Q4 2022. Such delays have become usual news for Virgin Galactic stock investors. The total delay is now at roughly 2.5 years, considering the company was supposed to start space travel in 2020.
Yet, the recent Q3 report reaffirmed that the company was still on track to reach the new target date. For now, investors seem to have taken the news positively.
Virgin Galactic remains a pioneer in the novel space tourism market and temporary setbacks should not necessarily lessen the potential for SPCE stock. Buy-and-hold investors could consider taking a position within their risk/return parameters.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
