The small-cap sector has been under extreme selling pressure for months. While the S&P 500 broke records recently, this basket of 2,000 stocks fell into a correction. As it stands now, it is 15% below its highs and nearing a recession in Wall Street terms. Virgin Galactic (NYSE:SPCE) is among the ones suffering. It is seemingly falling into an abyss with no signs of abatement in the selling. Meanwhile, the long-term thesis for SPCE stock is not going to help it find footing.
The stock needs time to develop a big enough fan base. The company’s short-term financial statements are not a good selling point yet. The business is not yet off the ground — pardon the pun.
Most of the stock price extrinsically relies heavily on faith and future successes. Even though SPCE stock has no competition on Wall Street, it is still a pie in the sky type of bet — almost literally.
However, it not having fans doesn’t mean it can’t rally. In fact, we saw three super spikes since the pandemic. In 2020 it blasted off to $42 per share abruptly, and then crash landed nearly just as fast. This happened again a few months later, albeit a bit slower, and it went even farther to $56 per share.
SPCE stock was 25 cents above the pandemic low yesterday. Keep in mind that was when the whole world had come to a screeching halt. If the stock market stabilizes, there should be buyers for Virgin Galactic.
SPCE Stock: The Bounty Comes Later
This is not the same as calling it a stock to buy for immediate profits. Investors in SPCE must have patience because their end run is far out in time. Yesterday, the stock fell almost 8% and the company is piling on to its problems. Specifically, Virgin Galactic diluted the shares from efforts to raise funds through convertible notes. Wall Street experts lowered their expectations accordingly. However, the expert average price target is still 2.5 times higher than the current price.
Meanwhile, there are currently no other public companies that are in the business of transporting people into space. There are two competitors working toward the goal, but they are still private. The CEO of Tesla (NASDAQ:TSLA) and the ex CEO of Amazon (NASDAQ:AMZN) each have their own efforts going. Respectively, Space X and Blue Origin have taken people into space already.
While space experts can argue the semantics on what is space, we all know what that means. I have no doubt that humans will work toward that goal until it happens. Therefore, the market will be there for SPCE if it can hang in there. A lot of the pain in the stock is not from its own potential. The stock markets are on shaky grounds because of sentiment problems.
The Federal Reserve pulling the plug on its quantitative easing is spooking investors expecting disasters. While this confidence shake out happens, investors must not take full trades if at all. Those long the stock already should just wait it out. Investors seeking new positions should consider only partial ones leaving room for error.
The exciting part about SPCE is that it has these flash spikes, but that is not a way to invest. If they come, then great, but I would book the profits instantly. As we’ve seen before, they quickly revert to the base thereafter. Besides, the state of the Reddit Apes is not the same as it was last year judging by their favorite stock prices.
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.
