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Virgin Galatic Is Still A Speculative Play On The Burgeoning Space Sector

Shares of Virgin Galactic (NYSE:SPCE) have dropped more than 10% of their value this month. SPCE stock’s negative run at the market now has at trading at 77% lower than its 52-week high price. Though it is more fairly priced, the risk/reward for the stock is difficult to measure up, making it unattractive.

Virgin Galactic (SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO.
Source: Christopher Penler / Shutterstock.com

SPCE stock racked up massive gains soon after its de-SPAC transaction in October 2019. The aerospace company plans to revolutionize travel across the globe, kicking off the exciting space race. However, after multiple delays and new competition entering the fray, the hype around the company has quickly faded away.

It plans to begin flying commercially by the fourth quarter of 2022, but it will continue burning through its cash to build its capabilities. Without profits or revenues to reference, SPCE stock is likely to remain a highly volatile investment for the foreseeable future.

The Threat Of Blue Origin

Amazon (NASDAQ:AMZN) founder Jeff Bezos’s ascent to space turned heads earlier this October. As of December, Bezos space firm has already launched its third successful human spaceflight while Virgin could only squeeze out just one. Blue Origin’s latest spaceflight’s capacity was maxed out, carrying six passengers.

Though many had felt that Virgin had the first-movers advantage in the space sector, Blue Origin has so far exhibited significantly more potential. Moreover, Bezos will continue investing roughly $1 billion of Amazon stock each year to fund its space venture. On top of that, the company aims to operate at a much larger scale than its peers.  It has already explored several opportunities in space, including satellite launches for the Department of Defense.

Next year, Blue Origin has plans for numerous payload and crewed flights. On the flipside, Virgin’s Italian Air Force pilot’s flight has been delayed to mid-2022. Moreover, the company doesn’t expect to commence its commercial operations until late 2022. Considering its track record so far, I won’t be surprised if it fails to meet its targets again.

It would be interesting to see how Blue Origin can cash in on its remarkable performance so far and perhaps opt for an IPO. Going public will allow the company to raise tons of cash to beat its rivals and expand its market share in the space industry.

Virgin Galatic’s Potential

Despite the risks, there’s no denying the massive market opportunity for Virgin Galactic to tap into. Though the space industry is in its nascency, several high-growth niches such as space mining and tourism could offer massive gains down the line.

For instance, the space mining sector will grow by over 20% through 2025. Moreover, the sub-orbital space tourism sector is likely to grow at a CAGR of 24.46% from 2021 to 2031. Additionally, you have several sub-niches in these sectors, likely to grow at different rates.

On top of that, Virgin has several advantages in its business model, which may give it the edge in the future. Its model facilitates quicker turnaround, less maintenance, and inspection. However, translating its potential into a growing revenue base will be its biggest challenge. At this point, it’s tough to comment on the appeal of its service, considering the elasticity of the product it offers.

Bottomline On SPCE Stock

SPCE stock has been pulverized in the past few months due to the lackluster performance of its underlying business. Virgin Galactic has failed to deliver on its targets and win over the trust of investors. In comparison, companies such as Blue Origin are already showing signs of an encouraging future ahead. Moreover, SPCE stock is expensive based on its current progress and is unlikely to be a winner in 2022.

On the date of publication, Muslim Farooque 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

Article printed from InvestorPlace Media, https://investorplace.com/2021/12/spce-stock-is-still-a-speculative-play-on-the-burgeoning-space-sector/.

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