Shares of spaceflight company Virgin Galactic (SPCE) have made massive moves in both directions since the middle of last year. The stock has lost more than 66% of its value in the past year and over 32% this year so far.
It is nearing its 52-week lows at just $6.7 from the 52-week high of $57.51 that it had reached after it received its commercial operating license from the Federal Aviation Administration last year.
It even went out to become one of the market’s most shorted stocks when the fear of inflation due to the Russia-Ukraine war and ongoing COVID-19 issues took over financial markets.
However, sentiment toward the stock seems to be changing now. Its shares have moved up ~24% in the last month, which could be the start of a movement in the opposite direction.
Virgin Galactic is a California-based spaceflight company that develops, manufactures, and operates spaceships and related technologies for the purpose of conducting commercial human spaceflights and flying commercial research and development payloads into space.
The company usually serves government organizations, private individuals, and researchers. It also indulges in ground- and flight-testing operations and the post-flight maintenance of its spaceflight system vehicles.
Virgin Galactic’s shares had a great time in the middle of the last year when the company had received its operating license. However, such momentum was pretty short-lived, and its shares then continued to drop, making a little recovery last month.
Peer comparison with the company’s shares is not possible, as its rivals include unlisted giants like Blue Origin and SpaceX. However, when compared to the market index in general, its shares have underperformed by a large margin.
An argument could be made that valuing the company correctly is complicated now as it is still in the process of ramping up its commercial operations for its space tourism business. It also does not have any such business earnings to prove its worth.
Due to all these speculative factors, the market considers Virgin Galactic as a risky investment which has caused many analysts to have a Hold recommendation on the stock.
Great Prospects in the Space Tourism Business
The space tourism business is a relatively newer but extremely lucrative one right now to venture into. Back in 2020, amid the COVID-19 crisis, the global market for Space Tourism was valued at around $651 million, but this growing industry is expected to reach a market size of $1.7 billion by 2027, growing at a CAGR of 15.2% over the 2020-2027 period.
Virgin Galactic is still far from becoming a commercialized space flight company as of now though it has been using that approach to catalyze its rate of growth of late. The company is still in its vehicle maintenance and enhancement mode, and both of its motherships, namely VMS Eve and spaceplane VSS Unity, are still out of service until the third quarter of this year.
However, by the fourth quarter, it intends to begin its schedule of passenger service and has also increased the price of the 90-minute flight journey on one of its spaceplanes to $450,000, up from the $200,000-$250,000 price range it decided earlier. Moreover, a deposit of $150,000 will also be received with that.
The selling of tickets has already begun in the middle of February, and by the fourth quarter, 1,000 tickets are expected to be sold. As per a report, the company has already sold off 700 tickets which means there is a huge possibility of the company fulfilling its sales target number even amid the war-like situation.
Further, Virgin Galactic’s new Delta spaceplanes are also expected to start operating by 2025 to 2026. This could improve its prospects for the company in space tourism.
Earnings in Line with Market Expectations
Virgin Galactic’s last earnings report has been largely in line with the market’s expectations, and this has also contributed largely to the optimism that is currently surrounding the company.
The company’s cash position remained strong at $931 million as of December 31, 2021, but its adjusted EBITDA loss has increased to $65 million compared to $60 million recorded last year.
This might have occurred due to the increase in research expenses and other selling, general, and administrative expenses. However, the overall net loss position of the company has improved to $81 million from $104 million in 2020.
The best thing the market liked in the earnings report was that Virgin Galactic’s commercial services have remained on track. The current Fleet Enhancement Program is expected to be completed by the third quarter of this year. This enhancement program would improve the vehicles’ durability, reliability, and flight rate frequency leading into commercial service.
Wall Street’s Take
Turning to Wall Street, SPCE stock comes in as a Hold based on two Buys, three Holds, and three Sell ratings assigned in the past three months.
The average Virgin Galactic price forecast is $12.68, implying upside potential of 40.1%. Analyst price targets range from a low of $8.40 per share to a high of $24 per share.
Conclusion
Virgin Galactic’s shares are suitable for investors who have a decent risk appetite and a long-term investment approach, as the company still has a long way to go. The first half of this year may give some insight into the key milestones it can achieve in the future.
Besides, the completion of the spaceship/mothership upgrades in the third quarter of this year can also serve as an important near-term execution catalyst for the company’s stock. Nonetheless, as of now, investors should be a little careful as there is still not sufficient data to back the success of the company’s vision.
Therefore, we are neutral on the stock.
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