Virgin Galactic (NYSE:SPCE) stock may be selling off again. But, that doesn’t mean the party’s over for this speculative space exploration play. Sure, in the near-term, expect shares to remain volatile. The company is making rapid progress, but the pay-off is still years away.
Yet, as the only pure play space tourism stock in the public markets, this remains your best way to play for exposure to this megatrend. As I discussed back in September, analysts at UBS said this emerging industry could produce revenues of $38 billion per year by 2029.
Sure, Virgin isn’t the only player out there making moves in this space. But, this company won’t have to dominate the market for this stock to be a winner. Even a modest share of the market could mean significant runway for shares in the coming years.
So, with these long-term factors still in motion, why are investors getting skittish right now? Chalk it up the near-term uncertainty rattling the stock market at-large. But, while that may mean shares tread water (or dip further) in the coming months, now may be time to seize the opportunity, and enter a position at today’s favorable entry point.
SPCE Stock and Near-Term Hiccups
Virgin Galactic continues to have solid long-term prospects. Between prepping its future pilots, and being on track to launch its next test spaceflight, the company is putting in the work to turn what was once science fiction into economic reality.
However, in the short-term, that may not translate into massive gains for the stock. Previously, the Wall Street analyst community was unanimously bullish. But now, one analyst is taking a more “on the fence” position.
This month, Goldman Sachs’ Noah Poponak initiated coverage on SPCE stock, rating shares the equivalent of “hold,” and giving the stock a $19 per share price target.
His rationale? The analyst is bullish on the total addressable market, or TAM, for the company. High potential demand from the affluent bodes well for space tourism’s prospects. The issue, though, is Virgin Galactic’s long timeline before reaching profitability.
Positive free cash flow may not happen until 2025. In the meantime, the company may need to raise more money from the public markets. I agree there’s reason to be concerned about this potential future dilution.
But, while this could impact the stock in the short-term, it’ll help ensure the company can live up to its expectations, and scale into a multi-billion dollar business. And, as the company makes progress on its ambitious goals, expect shares to rise in the coming years.
Long-Term Catalysts Remain in Motion
Things remain uncertain for SPCE stock in the near-term. In addition, as the company operates with essentially zero revenue, the stock will remain “overvalued” based on traditional stock valuation metrics.
Yet, the long-term bull case for Virgin Galactic remains in motion. How so? Firstly, the space tourism megatrend isn’t going away. Sure, at first only the wealthy will be able to partake. $250,000 ticket prices all but guarantee this fact. But, hundreds of wealthy individuals were willing to book flights at this price, with thousands more on the waiting list. You can imagine how high the demand will be once prices reach more reasonable levels.
And, over time, ticket prices will come down. Eventually, that means a wider pool of middle class and upper middle class households will be able to afford the dream of going to space.
Sure, this is anything but a slam-dunk. Virgin Galactic and its space tourism rivals have their work cut out for them. But, buying at today’s prices (around $18 per share) allows you get into this opportunity at the ground floor. Yes, with its $4.1 billion market capitalization, and zero revenue, it seems at first glance much of this potential is already reflected in the share price.
But, once it gets over the initial hurdles, and accelerates into a multi-billion business, today’s valuation could look like a steal in hindsight.
Seize the Opportunity and Buy This Pullback
The short-term may remain uncertain for Virgin Galactic shares. But, as I highlighted above, the long-term bull case remains in motion. To top it all off, consider the high short interest in the stock.
With so many betting against it, an ounce of positive news may be enough to fuel a short-squeeze, sending shares above current price levels. Granted, this alone isn’t a reason to buy. But, it’s a sign today’s pullback may not last for long.
So, what’s the play with SPCE stock? Seize the opportunity, and buy this pullback.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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