Virgin Galactic (SPCE) is a company pioneering commercial space travel. The company aims to commercialize space flights, an industry that could be worth billions in the future. However, Virgin Galactic is yet to generate a meaningful revenue while its losses continue piling up. Hence, one of the more thrilling stocks to go public hasn’t lived up to investors’ expectations.
SPCE has underperformed the market over the past year. The company’s stock outperformed the S&P 500 from mid-May 2021 till October 2021, before it plummeted and started to underperform. The underperformance became severe as the gap widened from November 2021 to January 2022. As a result, SPCE offered a total return of around -60.6%, below the S&P 500’s return of -0.9%
Hence, the dismal performance leaves investors questioning its long-term worth. Virgin Galactic’s financial outlook isn’t strong, but the company’s potential market remains massive. This dilemma makes it difficult to decide whether SPCE is a good long-term bet, or just another value trap.
On TipRanks, SPCE scores a 1 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to underperform the broader market.
Virgin Galactic and its Massive Potential Market
People aren’t too well-versed with the workings of the space industry. However, everyone knows that its a space with high potential. Based on Citigroup’s reports, the space industry’s revenue could increase from $350 billion in 2020 to a whopping $1 trillion in 2040.
This growth might be inclined towards launching space-related service offerings, but analysts expect that space tourism’s revenue opportunity has the potential to grow to a mammoth $101 billion by 2040. This means Virgin Galactic can gain big in the future and reward investors for staying patient.
According to Morgan Stanley’s analyst, Nick Jonas, Virgin Galactic could be an early leader and gain a first-mover advantage in hypersonic point-to-point travel. This innovation allows people to fly five times the speed of sound and could potentially yield handsome revenues.
While these possibilities care compelling, the company’s current state is hardly encouraging with the its lackluster operating results and continued failures.
SPCE is Burning Cash Faster than its Aircraft Fly
Virgin Galactic’s revenue rose from zero to about $319,000, year-over-year. However, this revenue didn’t come from space tourism, but from research and engineering services.
Furthermore, Virgin Galactic’s loss increased from $81,277 to almost $92,000, due to the high research and development costs. The company can’t dodge these costs since the testing ensures that the platform is ready and safe for flight. Yes, the research will help the company better its services. But currently, it looks like Virgin Galactic has no more room to incur high costs.
Unfortunately, Virgin Galactic keeps postponing the start of its regular operations. While it successfully sent its founder, Richard Branson, to space last year, it has pushed commercial launches off for now.
The postponement could be because Virgin Galactic wants to master its services before charging customers. However, the delays expose the business model to potential risks such as inflation, and rising uncertainty in the firm.
The Space Tourism Industry Might Become a Red Ocean
Virgin Galactic is operating in a high potential industry. With such a massive market, stiff competition is likely to be a major problem moving forward. Impacts are already being experienced from Jeff Bezos’ Blue Origin, which sent six people on a flight into space soon after SPCE did. Blue Origin has since completed several other trips, including with paying customers.
Wall Street’s Take
Turning to Wall Street, SPCE stock maintains a Hold consensus rating. Out of five total analyst ratings, one Buys, two Holds, and two Sell ratings were assigned over the past three months.
The average SPCE price target is $9, implying 35.54% upside potential. Analyst price targets range from a low of $4 per share to a high of $20 per share.
Takeaway – Is SPCE Stock a Buy?
Virgin Galactic is reeling from high cash outflows, delayed commercial services, and tough competition. However, SPCE isn’t entirely hopeless. Virgin Galactic has more than $1.2 billion in cash and cash equivalents, sufficient to cover losses before commercial flights take off. Moreover, the almost $1.7 billion market cap makes Virgin Galactic look cheap.
Currently, SPCE doesn’t look appealing, but if management takes careful steps and launches services without delays, the stock might just surprise investors.
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