Space travel pioneer Virgin Galactic (NYSE:SPCE) has had a breakout 2020. Year-to-date, SPCE stock is up about 120% thanks to favorable developments in the whole commercial space sector, as well as a market-wide short-squeeze which helped push Virgin’s heavily shorted stock higher.
Yet, SPCE has gone sideways over the past two weeks amid noise surrounding the company’s flight schedule.
Long-term investors would be wise to ignore this noise. Virgin Galactic is working on rocket science, and rocket science is a precise science that takes time and requires patience. Delays are a natural part of that process. All that matters is if the company continues to trend in the right direction toward launching commercial space flight operations (and scaling those operations) soon.
That is the case today.
So, long-term investors would be wise to ignore the flight noise and stick with Virgin Galactic for the long haul.
Here’s a deeper look.
SPCE Stock: Ignore the Noise
Virgin Galactic stock has been trading with significant volatility all month long, with the moves being driven by test-flight updates from the company.
Shares popped in early February after the company announced that its new flight window for a rocket-powered test flight of its SpaceShipTwo Unity ship would open on Feb. 13, with opportunities to fly throughout February pending weather conditions.
Virgin Galactic’s stock moved even higher after the FAA opened up a flight restriction that implied that the flight was, indeed, happening. But then shares moved in the other direction, after the company pushed back its test flight to allow for more technical checks.
The volatility makes sense for SPCE. After all, test flights to Virgin Galactic are what earnings reports are to other companies.
But long-term investors would be wise to ignore the volatility in SPCE.
That’s because Virgin Galactic is quite literally working on rocket science. Rocket science is a precise science, which means it requires patience. Delays are par for the course, because you have to get it everything 100% right and any error therein could result in significant damage — or worse, injury or loss of life.
When dealing with rocket science, investors shouldn’t worry about delays. They should expect them. They should embrace them. And instead, they should turn their eyes toward the bigger picture.
Pay Attention to the Big Picture
The bigger picture is that Virgin Galactic stock remains a compelling long-term investment opportunity so long as the company continues to trend toward launching and scaling commercial space flight operations.
That remains true today.
In 2020, the company staged multiple successful test glide flights. Even in the flight that went “wrong” and resulted in a fail-safe scenario being triggered, the pilots executed flawlessly in that fail-safe scenario, underscoring the company’s robust safety architecture in a worst-case-scenario. The company appears ready to follow up that test flight with another test flight soon — likely sometime in late February or early March. History tells us that the next flight should go well.
The big picture, then, is that Virgin Galactic continues to make meaningful progress toward launching and scaling commercial space flight operations.
Considering the economic opportunity of doing that is enormous, so long as Virgin Galactic remains on that track, SPCE stock is a great long-term buy.
Fundamental Upside Remains
My long-term model on Virgin Galactic makes some pretty basic assumptions.
I see the company building and launching about one commercial space aircraft per year into 2030, giving the company about a dozen six-seater spaceships that are making around five trips per month. I think demand for those flights will be huge, since Virgin Galactic will have near-zero competition and humans are obsessed with space. Average ticket prices will likely hover around $300,000.
Under those assumptions, I see Virgin Galactic as a $1-plus billion revenue company by the end of the decade. Margins on those revenues will be huge, thanks to Virgin Galactic’s low recurring operating expenses and significant pricing power. Net net, I see Virgin Galactic netting about $2.50 in earnings per share by 2030.
That’s just from the commercial space flight operations. Virgin Galactic also has an opportunity to cross-sell its propulsion technology into the aviation market to potentially create a new generation of hyper-fast aircraft that take you from Tokyo to New York in a few hours. Of course, the potential of that propulsion business is enormous — and if successful, will likely result in billions of dollars in revenue and hundreds of millions of dollars in profits.
Thus, in grand total, my modeling suggests that Virgin Galactic has an opportunity to reach over $5 in EPS by 2030. Based on a 25X forward earnings multiple and an 8% annual discount rate, that implies a 2021 price target for SPCE of nearly $70.
Bottom Line on Virgin Galactic Stock
Virgin Galactic is a compelling pure-play on the emerging Space Economy. To that extent, long-term investors shouldn’t worry about the company’s noisy test flight schedule. It will continue to be noisy forever, because this is rocket science. Delays happen, and they don’t matter at all.
All that matters here is the trend. Is Virgin Galactic continuing to trend toward commercial space flight operations?
The answer to that question is “yes.” So long as that remains true — and the valuation remains tangible — Virgin Galactic shares will remain a buy-and-hold name.
P.S. One of my favorite sayings is “where there’s disruption, there’s opportunity.” And there’s a massive opportunity happening right before our eyes.
Remember how Jeff Bezos looked at the state of the retail market, and he created Amazon.com in response? Yes, this opportunity is that huge.
As you know, I don’t make stock picks on a whim. I spend countless hours analyzing them, creating models, and measuring their long-term potential. It’s how I got to be America’s No. 1 stock picker, according to TipRanks.
So believe me when I tell you that there’s a stock out there that could very well become “the next Amazon.”
I’ll continue to tell you more about this hypergrowth opportunity over the next week and, on Feb. 23 at 4pm EST, I will reveal its industry, name, and ticker symbol… for free.
Mark the time and date on your calendars, folks!
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.