Shares of commercial space flight pioneer Virgin Galactic (NASDAQ:SPCE) sunk on Friday after the company yet again delayed the launch of its commercial operations. Specifically, due to some technical errors with its December flight, Virgin Galactic is pushing back commercial ops launch to 2022. SPCE stock plunged 15% on the news.
It’s easy to see why. This is a company notorious for delays. They’ve been promising to fly people to outer space since 2007. Yet, here we are in 2021, and still nobody’s flying into outer space.
Investors have lost their patience.
But they shouldn’t.
Listening to the call and walking through the presentation, I didn’t get the feeling that this is a company blundering along that will never fly folks into space.
Instead, I got the feeling that this is a company on the precipice of hypergrowth — a company that’s doing all the final prep work today before rapidly growing its commercial space ops in the coming years.
That’s why I think this dip in SPCE stock is actually a great buying opportunity.
Here’s a deeper look.
SPCE Stock: Safety First
Virgin Galactic is delaying commercial space ops launch, again, because the company is delaying its next test flight due to some technical errors.
Specifically, the company’s December test flight didn’t go as planned. The onboard rocket motor computer lost connection due to electromagnetic interference (EMI), triggering a fail-safe scenario.
The company has since fixed that EMI issue. But in fixing that issue, they unintentionally created additional noise within the sensor environment. Now, the company has to address this additional noise — which is causing the company to push back its next test flight by 8 to 9 weeks.
That may seem like bad news for Virgin Galactic bulls, but it’s actually good news.
That’s because safety comes first in space flight. The company with the safest and most rigorously tested spaceship will, at scale, be the company that the public trusts the most and the one that flies the most folks into outer space.
That company is Virgin Galactic.
The company has developed a stellar reputation for always making sure everything is perfect from a safety and operations standpoint. This has resulted in delays, yes. But it will ultimately lead to the creation of the best spaceships in the industry.
So, if you’re playing the long game with Virgin Galactic’s stock, you actually love to see the company being so thorough with its flight checks.
Filling Out the Ranks
The market seems to think that this delay is a big deal, suggesting the company is just blundering along. Due to that perspective, shares of SPCE are crashing.
But, as I stated earlier, that’s just not the case at all.
The company is planning multiple test flights this summer, and its newest ship — the SpaceShip III — is now ready for testing. Virgin Galactic also scored a big deal with the Italian government, and will do a revenue-generating research-focused space flight for them this fall.
Further, the company has created a brand-new Space Advisory board that comprises some of the world’s most renowned experts in space. They’ve also brought on a former Disney exec (who was integral in bringing to life multiple Disney theme parks) to design a one-of-a-kind Virgin Galactic consumer experience.
Management also announced a new class of spaceships, dubbed the “Delta” series, that are highly scalable and can be built much more quickly than the current class of spaceships. And they doubled down on the call multiple times that these spaceships will be the key to unlocking the company’s goal of 400-flights and $1 billion per year per spaceport.
Does that sound like a company that’s just blundering around?
No. Far from it. It sounds like a company that’s doing all the final prep work before it launches into hypergrowth mode.
That’s why I think recent weakness in SPCE is shortsighted. By 2023, this company will have multiple spaceships flying hundreds of people to space.
In response to the quarter, I’m actually revising my numbers higher.
I’ve always thought the $1 billion in revenue per spaceport goal was lofty. The new Delta ships now make it possible. And management seems committed to opening up a second spaceport before Spaceport America reaches full capacity.
Thus, by 2030, I think Virgin Galactic will have two spaceports doing about $1 billion in revenue.
This leads me to modeling for the space flight business to hit about $3.50 in EPS by 2030.
Based on a 25X forward earnings multiple and a 10% annual discount rate, that implies a 2021 price target of over $40.
And that’s without considering any revenue upside from licensing it’s propulsion technology.
Bottom Line on SPCE Stock
Virgin Galactic appears to be in the final stages of testing, and is now doing everything to gear up not just for commercial space ops launch — but for rapid expansion of those ops once they do launch.
That’s why SPCE stock is one of my favorite growth stocks to buy today.
But it’s not my single favorite.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon. Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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