It’s said that patience is a virtue. But for the holders of Virgin Galactic (NASDAQ:SPCE) stock, patience may be an understatement. At two points this year, SPCE stock has rocketed over $50 per share.
However, with the company at least a year (and likely more) away from generating meaningful revenue, the rallies of the stock can be chalked up to the meme-stock movement.
Many investors who bought the stock are sitting on a loss. And at this time of year, it might be tempting for them to book their losses and move on.
I wouldn’t blame them. But despite the tax consequences, I could also understand holding onto the shares as long as the position is not too large. That’s because Virgin Galactic could turn out to be a moonshot. Its performance will depend on how well it executes its plan to commercialize space tourism.
Being Right Every Time
I recently had an acquaintance ask me about my thoughts on SPCE stock. I told him that I am skeptical about the shares. He agreed, but asked, “if money was no object and you knew you would land safely would you do it?”
I said, “Absolutely.” And that’s the reason to be bullish on Virgin Galactic. Moreover, it’s easy to want the firm to succeed. However, space flight is risky. According to The New Yorker, 1.4% of all Russian, Soviet, and American crewed spaceflight missions have been marred by fatalities.
I didn’t know that before reading the article. However, one year before Virgin Galactic conducted its first test flight with a civilian (in this case Sir Richard Branson), I wrote the following regarding my concerns about investing in SPCE stock:
“An accident with a ride at a theme park can set revenue back for years. An accident with a trip to the suborbital area of space will put a company out of business. You can sign all the waivers you want. The legal fees alone will be crushing.”
I followed that up a couple of months later by reminding investors that when it comes to space travel, Virgin Galactic must be right every time. For the most part, retail investors have ignored me. They decided that Virgin Galactic was worth a trip to the moon on gossamer wings.
Perhaps investors should listen to the words of Virgin Galactic’s founder and visionary, Sir Richard Branson. Sir Richard himself acknowledged that the profits of a company attempting commercial spaceflight depend on safety. And he has said that a private space program can’t afford to have any fatalities.
Expect Significant Cash Burn at Some Point
As Virgin Galactic’s CEO, Michael Colglazier, reminded analysts on the company’s last earnings call, Virgin Galactic is building an industry from the ground up. That’s admirable, but it’s also expensive.
The company has a goal of eventually launching 400 flights per year per spaceport. That means that Virgin Galactic is going to have to invest in a larger fleet, likely draining a substantial part of the company’s $1 billion war chest.
For a closer look at the company’s cash flow situation, I suggest you read this article by InvestorPlace contributor Mark Hake.
SPCE Stock Is a Gamble That Could Pay Off
I don’t know what the odds are that Virgin Galactic will be successful. My gut instinct tells me that it’s less than 50%. But that’s for others to decide. This is one stock that I’m staying away from.
If you have money that you absolutely won’t need and can absolutely afford to lose, then SPCE stock may be a lottery ticket worth purchasing.
Buy the shares and stick them in your mental drawer and wait. Once the company starts commercial flights, you could be rewarded handsomely. And if you keep your position small and Virgin Galactic fails to launch, you’ll be OK.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
