In the billionaires’ race to space, it seems that Sir Richard Branson got there first in his Virgin Galactic (NASDAQ:SPCE) VSS Unity. It hasn’t seemed to help SPCE stock enough, though.
Granted, Elon Musk’s SpaceX has been flying missions much longer, carrying cargo and crew to the International Space Station as well as launching satellites.
Jeff Bezos’ Blue Origin got him higher than Branson but Branson got up faster.
But as much as space seems more like a billionaires’ playground, the fact is, space is already big business. And it’s going to get bigger as time goes on.
This new generation of private space travel has been very exciting, especially during the pandemic. It was certainly diverting to watch groups of Earth-bound average humans take to the Karman Line if only for a few minutes.
SPCE Stock Craters
At this point, there are a number of SPAC-birthed rocket and space companies that have gone public. But like all new sectors, there will be a horde of companies entering the arena, but there will likely only be a handful that walk out.
There’s a reason that SpaceX and Blue Origin remain privately held at this point. It’s because this first wave of space companies is bootstrapped and really has to perform to make any real mark in the sector.
The public financing helps, but it will have to generate revenue at some point, and getting those contracts is tough.
That’s the one thing about SPCE stock. It’s run by a guy who has started other businesses that didn’t seem to hold out much hope of profitability, much less existing for any period of time.
It seems that SPCE is following that path. Certainly, Branson’s spacecraft has a limited scope – the goal isn’t to head to Mars or even the moon. It’s for space tourism as well as research that can be conducted in microgravity.
What SPCE sees as its advantage is the fact that it can turn around flights much quicker than its competition.
If it can build and operate a handful of its spacecraft, it can run flights in relatively rapid succession, which would be great for potential individual and research customers.
Also, its launches are much more cost-efficient than traditional space travel. That allows for more access by more potential customers.
Building Its Niche
SPCE isn’t trying to do more than it can. The company has established a niche where it thinks it can make space travel profitable. It’s not trying to become a private sector NASA, or a NASA partner like SpaceX or Blue Origin.
That’s a good thing. When the sky is literally your limit, it’s good to set your goals and avoid mission creep. It could be deadly in such a young and cost-prohibitive market. That’s where Branson’s knowledge of these challenging, costly industries comes at an advantage.
Mark Hake has a very good explanation of how well SPCE has managed its cash burn. This is crucial for the long-term success of the company as well as SPCE stock.
Fueled Up for Escape Velocity
In mid-January, SPCE stock also launched a convertible bond offering for $425 million, which it can add to its cash pile of nearly $1 billion. That will keep the company comfortably operational until it can get its revenue stream in place for 2023.
But as all this was happening in Space 2.0, the markets decided that all these new companies with big ideas and negative to no earnings were no longer fashionable. And this sector has been punished.
SPCE stock is now down 75% in the past 12 months, 36% year to date alone. Its 52-week high is $62.80. SPCE stock is currently trading near its 52-week low of $8.48. That’s quite a swing with nothing but decent news from the company.
But we’re getting close to oversold territory, especially given Branson’s ability to make wild ideas work. If you’re looking for a decent bet in the space sector, SPCE stock is a long-term buy here with your fun money.
On the date of publication, GS Early 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.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors during that time. He’s seen a few things and hears more.