Virgin Galactic (NYSE:SPCE) stock has been struggling lately, although it has shown great promise for the bulls over the longer term. While shares are languishing below $12, let’s not forget that in February, SPCE stock tagged $40.
That was before the novel coronavirus selloff hammered it — and many other equities — as the stock market tumbled. Despite this setback, Virgin Galactic has a lot of positives going for it right now. The biggest of which could be its latest deal with NASA.
NASA Teams Up
When the company reported its most recent quarterly results, Virgin Galactic missed on earnings and beat on revenue. However, the headline numbers weren’t important. That’s mostly because SPCE stock doesn’t do a whole lot of business yet, (more on that in a bit).
However, there was a line in the press release that caught investors’ attention. It read, “Entered into Space Act Agreement with NASA to facilitate the development of high speed technologies.”
Digging through the conference call, management explained the situation. While the company is working with NASA on some healthcare-related initiatives — like pressurized chambers and oxygen hoods — the bigger focus is on travel. Not just the type of space tourism that Virgin Galactic is working toward, but high-speed travel here on earth.
According to management (bold emphasis added):
In partnering with NASA, we will help to advance the U.S.’ efforts to produce technically feasible high Mach vehicles for potential civil applications…We are also the only team designing, building and flying a crude vehicle at over Mach 3 at the edge of hypersonic flight, providing first mover advantage.
We believe there are significant opportunities to apply higher speeds to aviation industries and drive technological development…see this as an area with tremendous growth potential that we will continue to invest in alongside our commercial spaceflight operation. We believe this next generation of high speed travel could broaden consumer access to safe, customer driven, efficient and environmentally responsible transportation.
Concerns With SPCE Stock
That said, there are still concerns about SPCE stock. For starters, the company has virtually no business at the moment. It has more than 400 reservations for its One Small Step initiative, which would equate to “well over” $100 million in future revenue. But we’re not there yet, and future revenue is discounted by investors because it’s not current revenue.
In Q1 the company generated revenue of $238,000 from engineering services. In that time, it lost 30 cents per share, recording a net loss of $60 million. While an improvement from the $73 million loss in Q4, the cash burn will be a concern if Virgin Galactic can’t start generating meaningful revenue.
Although SPCE stock has a strong balance sheet with ~$420 million in cash, $475.3 million in current assets, and just $113.4 in current liabilities and no long-term debt, cash burn can only go on for so long without causing issues.
Bottom Line on SPCE Stock
On the one hand, we have a company with a ton of potential. Not just in a new form of travel/experience for wealthier customers, but for potential high-speed travel too.
High-speed travel has obvious hurdles, but clearing them would open the door to a lot of opportunity. Particularly for a company like Virgin Galactic if it’s the first to crack the code.
That’s why this is a speculative play. There’s very little revenue right now and betting on future revenue has obvious risks. This is an expensive business, so there’s no doubt that SPCE stock will need to raise capital in the future.
But if the prospects are bright, it should have no issues doing so. And if they’re really bright, then the stock should rally in kind.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.