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SPCE Stock: A Meme Stock That’s Fallen from Grace?
Stock Analysis & Ideas

SPCE Stock: A Meme Stock That’s Fallen from Grace?

Virgin Galactic (SPCE) is a company that’s had a stock chart resembling Sir Richard Branson’s flight into lower orbit. Indeed, watching SPCE stock soar from below $25 at the start of the year, to more than $62 per share prior to the flight, only to end up right around where this stock started the year, has been exhilarating to watch.

Indeed, this stock has been one of the more volatile stocks this year, soaring and plummeting on a news flow that doesn’t seem to stop. The space race is on, and Virgin Galactic appears intent on winning the space tourism race. That said, rising competition from other players has made the future outlook for this sector uncertain.

I remain bearish on SPCE stock for a number of reasons. We’ll get into those in a second. However, it’s important for investors considering this highly volatile stock to take a minute to look at the company’s stock chart before diving in. (See Virgin Galactic stock charts on TipRanks)

Let’s take a look at what’s been driving volatility with Virgin Galactic, of late.

Test Flight Delayed: What Now?

This summer has been an extremely volatile one for investors in SPCE stock. Indeed, SPCE stock surged to the $57 level on June 25, after Virgin Galactic received FAA (Federal Aviation Administration) approval to conduct commercial space flights. The impressive increase late-June saw SPCE stock soar as much as 40% in a single day.

However, since then, the volatility has mostly been to the downside. An ongoing probe by the FAA into the mishap investigation report, stemming from the July 11 flight which saw Sir Richard Branson enter space, has dogged this stock.

Last week, shares dropped more than 3% after Virgin Galactic announced the company would delay its Unity 23 test flight with the Italian Air Force. While Virgin Galactic claims the FAA probe and Unity test flight delays are unrelated, investors seem to have had their faith shaken by these recent events.

Accordingly, the question many investors have right now is whether SPCE stock is worth a buy on this dip. As mentioned above, shares of this space tourism stock are now trading roughly on par with where they started the year.

However, concerns around a major fault in Virgin Galactic’s flight control actuation system sounds like a problem that may take some time to resolve. Accordingly, some investors may feel content to wait for a better entry point that may emerge.

Company Financials Leave Much to Be Desired

It’s worth pointing out that Virgin Galactic is likely still a ways away from running commercial space flights at scale. However, investors running the numbers on this company will note that Virgin Galactic is currently bleeding a lot of cash.

As per the company’s Q2 earnings report, Virgin Galactic’s operating loss ballooned to $73.9 million this past quarter. This represented a year-over-year increase of 17%, tied to increasing costs related to the company’s recent initial flight. Virgin Galactic’s net loss also grew 15% year-over-year to $0.94 per share.

The company burnt nearly $114 million in cash this past quarter, stoking concerns more capital raises would be on the horizon. While Virgin Galactic did raise $500 million from a July equity offering, this cash will likely only tide over the company for another year at its current cash burn rate.

SPCE’s Equity Offerings

In July, Virgin Galactic introduced an ‘at-the-market equity offering program. It submitted a prospectus supplement with the aim to offer and sell $500 million worth of common stock. SPCE managed to sell around 13.7 million shares from its common stock, allowing it to raise $500 million. 

Virgin Galactic wishes to use the funds collected from at-the-market offering to expand the spaceship fleet. However, analysts warn that such steps might worsen the already dismal shareholder returns. 

Additionally, as mentioned, investors appear to be pricing in the reality that future equity offerings may be needed to fund Virgin Galactic’s growth. More dilution lowers the average exposure of existing investors to the company’s future cash flows. Accordingly, this is a risk investors take in getting in early on a growth stock like Virgin Galactic.

Wall Street’s Take

As per TipRanks’ analyst rating consensus, Virgin Galactic is a Hold. Out of 11 analyst ratings, there are 4 Buy recommendations, 5 Hold recommendations and 2 Sell recommendations.

The average Virgin Galactic price target is $31.30. Analyst price targets range from a high of $48 per share to a low of $25 per share. 

Bottom Line

Virgin Galactic is facing strong competition in the race to provide space tourism services to an eager clientele. While SPCE stock remains a hot commodity right now, the potential for heightened volatility makes this stock one that investors should take caution with today.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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