When young children are asked what they want to do when they grow up, their answers are often similar. Many children dream of becoming firefighters, doctors, and of course, astronauts. As far as these options go, the one with the trip to the vast unknown seems to have more mystique. Many adults retain this dream close to their hearts, but few people have ever made it to the darkness of outer space above the Earth.
On Sunday July 11, founder of Virgin Galactic Holdings (SPCE) Sir Richard Branson, a few employees, and a small flight crew achieved their dreams. The voyage began with a twin fuselage aircraft lifting the smaller space-ready glider to a high altitude, then separating and sending the glider to about 50 miles above the surface of our planet. The trip may have lasted less than two hours, but it is expected to herald a new age of space tourism for untold generations to come. (See Virgin Galactic stock charts on TipRanks)
The event was live-streamed online, and after watching the flight, one could not help but feel excitement about what was accomplished. A private company actually successfully sent several people to outer space, and opened the door to an industry that seems straight out of a science fiction novel. One might think this could be the only instance of such a feat for the month, but one would be wrong.
Former CEO of Amazon.com, Inc. (AMZN), Jeff Bezos, is set to launch July 20. Founder of his own commercial space flight company, Blue Origin, LLC, he will also board the craft and lift off toward suborbital flight.
The two billionaires are in direct competition for taking space tourism to market, and traveling in the respective spacecrafts provides both validation for the concepts, and of course much more media attention.
The day following the launch, Virgin Galactic announced it would sell $500 million in stock, further diluting the share float. The market responded with closing losses of –17.30%, although this is to be expected after such a move.
Advantages and Upsides
The shares issued will increase volume and liquidity for the company, and yesterday’s large loss can easily be seen as a buying opportunity, wrote Oliver Chen of Cowen & Co. The analyst is also expecting significant gains in share price, and assigned a Buy rating on the stock. Chen declared a price target of $51.
Virgin Galactic is making its way through its business model, and is now approaching the commercial flight phase. Eventually, the company will open ticket sales for whomever wishes to fulfill their dreams of being an astronaut. Beyond that, SPCE intends to expand its fleet and move to a more manufacturing strategy for new and improved spacecraft.
Risks and Downsides
Virgin Galactic may not successfully fulfill its long-term goals, and eventually investors may become uninterested with simple up-and-down domestic space tourism flights. The company may have an opportunity to run point-to-point flights for high paying travelers looking to find a short cut around the world, but could run into regulatory headwinds regarding international travel.
Furthermore, the concept of space tourism as an actual commercial venture is potentially already baked into the share price, as this is what the company initially set out to accomplish. This was mentioned by Ronald Epstein of Bank of America. Epstein reiterated a Sell rating, and declared a $41 price target on the stock.
Share prices have recently seen high levels of volatility, swinging in either direction based on the slurry of news constantly emanating from the company. As a highly speculative growth stock, broader market forces and price action could take serious tolls on SPCE’s share price.
Getting to the Point
Virgin Galactic has yet to turn a profit, and may not for several years. The space tourism company has never taken any paying customers aboard a flight and it is not entirely clear when this might happen. However, it has done one thing, and that is to make Richard Branson’s dream come true. The crew and passengers abroad the VSS Unity flew to the edge of space, and returned without a scratch. That is saying something.
Many companies are growth stage speculative picks for one’s portfolio, and not turning a profit does not mean the share price will not increase. Investors in SPCE were once considered the dreamers, but now, that dream is becoming a reality.
On TipRanks, SPCE has an analyst rating consensus of Moderate Buy, based on 4 Buy and 6 Hold ratings, and 1 Sell rating. The average Virgin Galactic price target is $36.90, representing a potential 12-month downside of 9.31%.