Earlier in January, Virgin Galactic (NYSE:SPCE) stock fell through its October 2019 debut price of $11.75. Little did shareholders know that the stock would fall another $3.75 over the next three weeks.
As I write this, it is below $9 and nowhere near its all-time high of $62.80 reached in June 2021.
Is SPCE doomed to mediocrity in 2022? Or is there something that could wake Virgin Galactic’s share price out of its general malaise in the months ahead?
I’ll consider both sides of the argument.
SPCE Stock Is Destined to Go Lower
Once upon a time, Virgin Galactic projected it would have paying customers on its space flights by 2020. That’s come and gone. It now hopes to have paying customers by the end of 2022, two years later than initially planned.
Given you can’t make money if you don’t have revenue, the two-year delay was bound to hurt its share price at some point.
It also didn’t help that Virgin Galactic founder Richard Branson sold more than $1.25 billion of Virgin Group’s stake in the space tourism company over the past 19 months to ensure his other business interests could keep operating during the pandemic.
Here’s what I had to say on June 9, 2020, shortly after Virgin Group’s first stock sale:
Virgin Galactic without Branson on board just won’t cut it. If Branson was to sell all of his shares, I think SPCE stock could sink to a low-single-digit stock price.
Although Branson is still Virgin Galactic’s biggest shareholder, he doesn’t have the vice-like grip he once had on the company. And while I thought Virgin Galactic could carry on with or without Branson, the idea of it doing so has weighed on the minds of some investors.
How much lower can it go?
Bank of America analyst Ronald Epstein cut his target price for SPCE by half on Jan. 20 to $10 from $20. He also has a “sell” rating. The analyst believes that a combination of lock-up periods ending, stock dilution from convertible notes issue, and a lack of catalysts in the short-term could push its share price lower.
If it doesn’t share some good news soon, there is a real chance other analysts will revise their price targets lower.
Virgin Galactic Share Price Gets a Wake-Up
Of the 12 analysts covering Virgin Galactic, four rate it a “buy,” five a “hold” and three either “underweight” or “sell.” The median target price is $22, with a high of $36 and a low of $9. Assuming the highest of the target price estimates plays out, a buy around $9 would net investors a one-year return of more than 300%.
That’s a significant jump in valuation. For this to happen, something tangible must get investors excited about the company’s future. Right now, there appears to be nothing but malaise and contempt for its shares.
InvestorPlace’s Nicolas Chahine recently pointed out that SPCE stock had had three big moves during the pandemic, the most recent in May 2021, when it went from $16.18 to $62.80 in the blink of an eye. The share price jumped 288% in six weeks.
So, as my colleague suggests, it’s more than possible for SPCE to experience another big price spike, but you should not count on it. On the plus side, he does argue that much of Virgin Galactic’s share price troubles aren’t because of the company’s lack of potential but rather from poor investor sentiment at the moment.
As InvestorPlace contributor David Moadel points out, the only news it’s had recently is the issuance of $425 million in 2.5% convertible senior notes due on Feb. 1, 2027. The initial conversion price is $12.79.
And since the company already stated in October 2021 that it would commence commercial flights in fiscal 2022’s fourth quarter, until it can reveal the schedule for 2022 test flights before launching commercially, there isn’t anything for investors to get excited about.
Starting in late 2022, Virgin Galactic will start monthly flights using its VSS Unity spacecraft. Then, in the second half of 2023, it will run two flights per month with its new VSS Imagine spacecraft. So that’s almost one flight a week starting in 2023.
That’s something for sure.
The Bottom Line
If speculation is your game, I don’t think there’s any doubt that Virgin Galactic could deliver significant returns by the end of this year. However, if the company has to push commercial flights into 2023, there’s no question its share price would fall further, perhaps even into penny stock status under $5.
Until 2022 test flight dates are revealed or some other equally important piece of news, SPCE stock is dead money, in my opinion. As a result, you might want to take some more time to consider whether Virgin Galactic is a company worth owning.
I consider it a very speculative long-term buy.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.