The growth sector meltdown in late February and early March has created some golden buying opportunities for long-term investors, as many of the world’s most revolutionary and forward-thinking companies saw their stock prices plummet. One such opportunity I’m particularly bullish on is space tourism pioneer Virgin Galactic (NYSE:SPCE). This company is doing some truly world-changing things, and yet SPCE stock lost half of its value amid this selloff.
If you zoom out and look at the big picture, it becomes clear that this plunge is a golden buying opportunity.
The Virgin Galactic growth narrative has been riddled with delays for years. But it increasingly appears that the company is on the cusp of launching a first-of-its-kind commercial space travel operation that flies folks into outer-space. This will begin a new era of “luxury space travel”, and by 2030, this company will be flying thousands of people into space every year. The company will be generating billions of dollars in revenues, and hundreds of millions of dollars in profits.
Relative to that huge space travel potential, SPCE stock is dramatically undervalued today, with a market cap of just $7 billion.
That’s why I’m bullish on SPCE stock after the recent selloff. Long-term, this $30 stock is going to $80.
SPCE Stock: A Future Space Travel Giant
Virgin Galactic’s stock got hit so hard over the past few weeks because — in addition to pressures from the growth stock selloff — Virgin Galactic announced yet another flight delay in February which pushed out its commercial space operations launch to 2022.
For those who have followed the Virgin Galactic story for some time, this sounds all too familiar. For over a decade now, Virgin Galactic has been saying they’re going to fly people into space. Yet, here we are in 2021, and no one is riding in Virgin Galactic ships to see Earth from orbit.
Is Virgin Galactic ever going to fly people into space?
Yes. And soon.
You have to understand, flying people into space is quite literally rocket science. It’s hard, and more than that, everything needs to be perfect, else you risk the loss of life. The fact that it has taken Virgin Galactic a decade to get to where it is today is no surprise to any scientist or engineer.
But, this decade of trial-and-error is on the precipice of materializing into something huge. Given recent successful test flights and managerial moves which include fleshing out the exec team and designing a new, highly-scalable Delta spaceship, it increasingly appears like Virgin Galactic will start commercial space operations in 2022 — and when they do, the company is prepared to rapidly scale those space operations.
Huge Business w/ Durable Advantages
When it comes to Virgin Galactic’s growth narrative, two things are hugely understated.
Demand for commercial space travel is going to be huge. Humans are obsessed with space. We love space movies. We love space museums. And when Neil Armstrong landed on the moon, the whole world watched.
We love space.
Because we love space, demand to see Earth from space will be enormous. Sure, it’ll be pricey. But if you had the money, you’d probably do it. And guess what? A lot of folks have the money. About 200,000 people in the world are worth more than $30 million. I’d presume a healthy portion of those 200,000 folks will be willing to shuffle out $300,000 to go to space.
So, demand for space travel will be significant.
Virgin Galactic is doing rocket science. Rocket science ain’t easy. It took the company over a decade to even successfully do glide flights. Do you really think someone else is going to come along and figure out this rocket science in a few years?
No. Thanks its decade-plus of trail-and-error, Virgin Galactic has created a durable competitive advantage over peers. It will be one of a very select few companies that can safely and reliably fly people into space. So, of all of that huge demand from ultra high-net-worth individuals to see space, a significant portion of it will flow through Virgin Galactic.
Long-term, then, Virgin Galactic projects as a huge space travel business with big demand, big margins, and big advantages.
Virgin Galactic Stock Is Undervalued
When you look at the long-term potential here, it becomes clear that at current prices, Virgin Galactic’s stock is undervalued.
The company believes that at scale, it will do about $1 billion in annual revenue per spaceport. That makes sense. That equates to about 10 spaceships, doing about 5 flights per months, with 6 paying passengers on each flight, and an average ticket price of ~$300,000.
To me, those numbers seem entirely realistic. It’s also realistic to think that with one spaceport already, Virgin Galactic will have two fully operational spaceports by 2030. That should produce about $2 billion in annual revenue.
Gross margins will be very high. Around 75%, thanks to huge demand and limited supply, which gives Virgin significant pricing power. Opex rates should remain muted. Around 25%, thanks to the fact that all the costs are upfront and recurring operational expenses are actually quite low here.
That leads to about 50% EBITDA margins, and about $1 billion in EBITDA. Stripping out D&A, interest, and taxes, my modeling suggests that Virgin Galactic has the potential to earn about $3.15 in earnings per share by 2030.
Based on a 25X exit multiple, that implies a long-term price target here of nearly $80.
To that end, the recent dip in SPCE offers long-term investors a compelling entry point.
Bottom Line on SPCE Stock
The growth stock meltdown has created multiple golden buying opportunities. SPCE is one such opportunity.
But it’s not the best opportunity.
Instead, the best opportunity is in a company that reminds me of a young Amazon (NASDAQ:AMZN). 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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