A highly anticipated test flight from space tourism pioneer Virgin Galactic (NASDAQ:SPCE) ended prematurely this weekend after the engine of its SpaceShipTwo vehicle ‘Unity’ did not fully ignite due to a lost connection. Virgin Galactic stock — which had rallied big into the event — dropped about 15% in response to the “botched” flight.

For long-term investors keen on SPCE, this is a buying opportunity.

Sure, an engine anomaly cutting short the company’s first test flight in 22 months isn’t great news. But the reason for the engine anomaly appears to be a very easy fix, while the fact that Virgin Galactic was able to land the aircraft safely, without any injuries to any persons or any damage to any parts, speaks volumes about the company’s robust fundamental safety architecture.

Net net, the “botched” test flight didn’t set Virgin Galactic back. Rather, this company remains at the forefront of the explosive Space Economy. Similarly, Virgin Galactic stock remains a long-term winner.

What do we do with near-term dips in long-term winners?

We buy them. SPCE is no exception.

Here’s a deeper look.

Virgin Galactic Stock: Botched Flight Has an Easy Fix

When you are a space tourism company that has delayed launching commercial space operations for about a decade — as is the case with Virgin Galactic — a botched test flight is never good news.

So, it makes sense that SPCE stock is dropping sharply.

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But, upon closer inspection, the botched test flight is far from a deal-breaker for Virgin Galactic.

After Unity was released from its mothership, the onboard computer that monitors the rocket motor lost connection. This triggered a fail-safe scenario that intentionally halted the ignition of the rocket motor, and the space ship returned to Earth.

In other words, the entire flight was halted because a computer lost connection. That’s a pretty easy fix. Dig into the data. See at which specific point the computer lost connection. Implement small changes at that exact point. Get a new engine. Try again.

This was not a structural issue. Rather, a tangential issue with an easy fix. Once fixed, Virgin Galactic should be ready for another test flight.

Importantly, because this fix does not seem that hard, the timeline for Virgin Galactic launching Sir Richard Branson into space and officially commencing space operations in the first half of 2021 remains in-tact.

Long-term, then, this “botched” test flight has almost no implications for SPCE stock.

Safety Architecture Confirmed

Flying under the radar — no pun intended — is the fact that this botched test flight underscored the strength of Virgin Galactic’s safety architecture.

A computer lost connection mid-flight. A fail-safe scenario was triggered. And, in that fail-safe scenario, Virgin Galactic executed flawlessly. The space craft landed smoothly. Nobody was injured. No parts were damaged.

That’s great news. It basically means that when it comes to safety, Virgin Galactic is doing very well.

That’s very important, because safety will be of paramount importance to Virgin Galactic’s first customers. After all, flying into space is new, scary, and opens the door for lots to go wrong.

If Virgin Galactic can continue to cement itself as the safest space tourism company out there, that will go a long ways in winning over potential customers.

Thus, one could very easily look at Virgin’s botched test flight as a marginal “win” for SPCE stock, thanks to the boosted perception of safety of Virgin Galactic flights.

Still a Leader in the Space Economy

Overall, a botched test flight in early December 2020 means very little for Virgin Galactic long-term. In the big picture, this remains one of the most promising companies on the cutting edge of defining a new Space Economy that will be worth trillions of dollars one day.

I’m broadly sticking with my long-term model on Virgin Galactic.

The long-term model assumes 12 operational space ships by 2030, flying 5 flights per months, with 6 passengers on each flight, at an average ticket price of $300,000. Under those assumptions, I see Virgin Galactic’s space tourism business powering to ~$1.3 billion in revenues, with ~50% EBITDA margins. That lays the foundation for earnings per share to rise towards $2.50 by 2030.

Based on a growth-stock-average 25-times forward earnings multiple and an 8% annual discount rate, that implies a 2020 price target for SPCE stock of over $30.

Importantly, this model includes no upside from the company’s jet propulsion technology business.

Thus, I feel very comfortable saying SPCE stock is a buy today below $30.

Bottom Line on SPCE

Virgin Galactic stock is a long-term winner. The botched test flight is a near-term headwind.

What do we do when long-term winners plunge on near-term headwinds?

We let the dust settle. We let technical support show up. Then we buy the dip, ignore the noise, and hold for the long haul.