The thought of commercial space travel is becoming more of a realistic dream. Currently Virgin Galactic (NYSE:SPCE) is the only publicly traded company that is likely to take humans into space for as a business. Of course, this exciting concept has inspired investors to chase SPCE stock like a rocket quite a few times already.
Those who didn’t employ logical investment safety measures have suffered severe consequences.
One of my main goals when investing is to make sure I get off on the right foot. A green lift off is what I seek, because starting off red is highly annoying. This is different than me claiming that I can nail the bottom every time.
But sometimes the extreme levels make it so it is not an obvious buy point.
SPCE stock has had at least three major such scenarios in its in the last 2 years. From bottom to top, there were three separate rallies of 300% to 500% gains. Of course, all three ended in tears for those who chased them too late.
SPCE Stock Is Back to Base
Luckily, now is not such a case because the stock has already corrected 60% from its summer highs. This of course doesn’t mean that it cannot fall further this year. However, it does mean that the odds of upside potential in the long run outweigh the downside risk. When a sharp correction happens, it shakes off the weak hands. The stock ownership transfers to investors with stronger convictions. They are less likely to panic out of it at the slightest hiccup.
There are no real fundamental metrics to dissect at this point, because they are still in the formative stage. The company has recently taken a trip into space with its founder billionaire Richard Branson at the helm. But that was just another test flight to perhaps drum up future business.
I have no doubt that we will need space travel down the line. But for the first wave, it’s going to be more of a novelty than anything else. Consider those practice runs for the ultimate commercial use case of space travel.
I am a big sci-fi fan, so I’m definitely ready for it. But this doesn’t blind me into chasing SPCE stock without concern for profits. At these levels, my worries are low and I’m willing to risk some capital for the future outcome.
Investors might need some patience because the business model requires it. There are some technological and legal hindrances that would likely need to change.
Meanwhile, there’s always the Reddit group that could take it “to da moon” as they say. This isn’t my incentive to own SPCE stock, but I would not be too upset if it happens.
The pandemic changed lives forever, and this is very evident on Wall Street. The new mantra of investing was a novelty last year, but it seems like it’s taking hold. What we thought was a fad may have sustainability at least for awhile. The Apes, as they’re called, might be here to stay for quite a bit longer.
More Competition Is Better
Virgin Galactic could use some competition. It will benefit if it has more companies in its sector. There are two leading candidates that are actually also flying people into space. The founders of Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) each have their own space companies. They have had tremendous success, to a degree, out-shining NASA.
If either of Blue Origin or SpaceX go public they might initially draw bids away from SPCE. But in the long run they actually validate the concept of investing in space travel. Since these are the intrepid companies establishing the market, there will be enough bids to go around. Imagine if they had predicted the death of the first airline stock just because two more airlines entered the market.
There is much we don’t know about valuation for SPCE stock. But for now, we will have to settle for having faith in the concept. Moreover, investors will need to trust in the competency of the team executing plans.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.