Space-tourism company Virgin Galactic (NYSE:SPCE) looks to have finally turned around. In fact, SPCE stock has been lifted by a slate of good news in recent weeks.
On Jul. 2, SPCE stock rose more than 25% in premarket trading after the company announced that it will launch its founder, Sir Richard Branson, into orbit on Jul. 11. Branson is aiming to beat fellow billionaire, Amazon (NASDAQ:AMZN) founder Jeff Bezos to space. Bezos has said that he plans to launch into space with his own company, Blue Origin, on Jul. 20.
While the media has jokingly labeled the Branson-Bezos competition the ““billionaire space race,” there’s no denying that this publicity has helped push SPCE stock to new heights. But the news that Branson will be aboard next is just the latest in a series of positive developments.
SPCE Stock and FAA Approval
Probably the biggest and most positive news for Virgin Galactic recently was the Jun. 25 announcement that the Federal Aviation Administration (FAA) has granted it the license it needs to fly passengers on future commercial spaceflights. While the FAA had previously given Virgin a “launch license” to conduct test flights, the new license expansion now allows it to fly “spaceflight participants” into Earth’s outer atmosphere.
To acquire the license, Virgin had completed a 29-element program for the FAA, “clearing the final two FAA milestones with its most recent spaceflight test in May.” The two final requirements were particular to SPCE’s flight control and navigation systems.
News of this FAA license quickly sent SPCE stock into the stratosphere, with the company’s share price jumping 39% according to CNBC. Virgin Galactic’s stock is now up 89% year-to-date (YTD).
A Remarkable Recovery
This FAA clearance has been a catalyst for SPCE stock, representing a turnaround for Virgin after years of difficulties. Founded in 2004, Virgin Galactic has struggled mightily in recent years with technical problems, cancelled test flights and poor financial results.
As recently as May, Virgin Galactic reported a first-quarter loss of about $130 million and no revenue for the three-month period ended Mar. 31. Additionally, the company had about $617 million in cash at the end of Q1, down from $666 million in Q4 2020. Such poor results had analysts scrambling to downgrade SPCE stock. It traded as low as $15.05 on May 13.
Finally, further shaking confidence in Virgin Galactic were the repeated delays to its test program, as well as the share sales by Branson and chairman Chamath Palihapitiya. The ongoing spaceflight delays have pushed back Virgin’s promised start of commercial service from mid-2020 to early 2022. At the time it released its last quarterly results, SPCE said it wasn’t even sure it would be able to conduct the spaceflight in May. Fortunately, though, that May test flight went ahead and led to the FAA clearance.
SPCE Stock to the Moon!
Looking forward, Virgin says it’s working to complete development of its SpaceShipTwo system in the lead-up to commercial service. So far, about 600 people have signed up at a cost as high as $250,000 each. The cost — as well as the rigorous health requirements needed to participate — puts space tourism out of reach for many.
However, Virgin Galactic is diversifying beyond its current plan to provide wealthy tourists with a few minutes in zero gravity. For example, it made a recent partnership with NASA to develop aircraft that can travel at supersonic speeds. As with rival SpaceX, Virgin also plans to deliver astronauts and supplies to the International Space Station (ISS). And, the company continues to develop its Unity spaceship, which it hopes can fly deeper into space in coming years.
With SPCE stock breaking out and Virgin cleared to begin commercial spaceflights, now is the time to purchase shares. Right now, the median price target on SPCE stock is $33, implying some downside risk. However, that target likely doesn’t reflect the recent FAA license as well as the current rally that the stock is experiencing.
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On the date of publication, Joel Baglole 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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
